The nation's five largest mortgage lenders have offered a draft settlement to pay out as much as $25 billion to cover new terms for homeowners driven out by foreclosure, but government officials said Monday the states won't be able to close the deal before President Obama's State of the Union address on Tuesday.

The banking industry offer includes changes in foreclosure practices, which is a major goal of the Obama administration in the talks. But some states have resisted before, and Geoff Greenwood, a spokesman for Iowa Attorney General Tom Miller, who is leading the talks, said his counterparts are "just meeting to talk about proposed terms" and don't expect an announcement this week.

A Housing and Urban Development spokesman told Fox Business Network that "negotiations are still ongoing ... we hope to announce something soon." The spokesman said remarks from Housing Secretary Shaun Donovan last week -- in which he said the lenders and states were "very close" to an arrangement that would help up to 1 million homeowners modify mortgages -- "still stand."

According to the terms offered by the banks, those who lost their homes to foreclosure are unlikely to get them back or benefit much financially from the settlement. But about 750,000 Americans -- roughly half of the households who might be eligible for assistance under the deal -- will likely receive checks for about $1,800.

Roughly 1 million homeowners could see the size of the mortgage reduced by an average of $20,000.

Two sources familiar wi the negotiations tell Fox Business that the settlement could even reach $35 billion with the additional participation of about 10 smaller, regional banks.

The agreement could also reshape long-standing mortgage lending guidelines and make it easier for those at risk of foreclosure to restructure their loans.

The five major banks -- Bank of America, JPMorgan Chase, Wells Fargo, Citibank and Ally Financial -- would apply the settlement only to privately held mortgages issued between 2008 and 2011.

Sources and analysts said they do not expect any major refinance program through Fannie and Freddie, the nation's quasi-government agencies that own about half of all U.S. mortgages, roughly about 31 million U.S. home loans.

Trying to change Fannie and Freddie's programs would be extremely complicated and there is a risk it could cost taxpayers more bailout money if not structured correctly.

But sources told Fox Business Network to expect the president to announce a new rental program in Fannie and Freddie to allow struggling homeowners to stay in repossessed homes as tenants. This would help keep foreclosed home off the market.

Obama is likely to mention the proposals during his State of the Union address in an effort to push the talks, which started more than a year ago, to conclusion. But a top bank lobbyist said the deal won't be reached in time for the president to make an announcement at the annual address to Congress.

Sources said they do expect the president to push for more refinancing and modifications. The template for the president's speech is his economic address in Kansas last week in which he said the crisis has left "a huge deficit of trust between Main Street and Wall Street. And major banks that were rescued by the taxpayers have an obligation to go the extra mile in helping to close that deficit of trust."

In the speech, Obama said "at minimum," the banks should be "remedying past mortgage abuses that led to the financial crisis." That meant helping responsible homeowners remain in their homes, give more time for unemployed homeowners to find work to pay for their homes and increase access to lower interest rates.

Nearly 8 million Americans have faced foreclosure since the housing bubble burst. In some cases, companies that process mortgages failed to verify the information on foreclosure documents. The worst practices, known collectively as "robo-signing," included employees signing documents they hadn't read or using fake signatures to sign off on foreclosures.

But some say the proposed deal doesn't go far enough. They have argued for a thorough investigation of potentially illegal foreclosure practices before a settlement is hammered out.

"Wall Street again is trying to pass the buck. Instead of criminal prosecutions, we're talking about something that's not more than a slap on the wrist," said Sen. Sherrod Brown, D-Ohio, who has been critical of the proposed settlement.

Democratic attorneys general were meeting Monday in Chicago to discuss the deal with Housing Secretary Donovan. Republican attorneys general were ti be briefed about the deals via conference call later in the day.

Under the deal:

-- $17 billion would go toward reducing the principal that struggling homeowners owe on their mortgages.

-- $5 billion would be placed in a reserve account for various state and federal programs; a portion of that money would cover the $1,800 checks sent to those homeowners affected by the deceptive practices.

-- About $3 billion would to help homeowners refinance at 5.25 percent.

In October 2010, major banks temporarily suspended foreclosures following revelations of widespread deceptive foreclosure practices by banks. Discussions then began over a national settlement.

Some states have disagreed over what terms to offer the banks. In September, California announced it would not agree to a settlement over foreclosure abuses that state and federal officials have been working on for more than a year.

New York, Delaware, Nevada and Massachusetts, which sued five major banks earlier in December over deceptive foreclosure practices, have also argued that banks should not be protected from future civil liability. The deal will not fully release banks from future criminal lawsuits by individual states.

And both sides have also fought over the amounts of money that should be placed in the reserve account for property owners who were improperly foreclosed upon. Many of the larger points of the deal, including a $25 billion cost for the banks, have long been worked out, officials say.

The Associated Press contributed to this report.