More than 40 states signed onto a proposed $25-billion settlement with major mortgage servicers over faulty foreclosure procedures, but California, New York and other key states were still not among them.

“This enables us to move forward into the very final stages of remaining work,” said Iowa Atty. Gen. Tom Miller, who heads the multi-state settlement negotiations. “Federal and state officials, as well as representatives from the banks, continue to address matters that they must complete before finalizing any settlement.”

Miller would not comment further.

The proposed settlement had hung in limbo most of the day as California and other key states pushed past the Monday deadline — an extension of a Friday deadline — to try to get better terms for homeowners from the nation’s five major loan servicers.


Miller’s decision to move forward, however, doesn’t stop California and the other states from joining the agreement later.

California Atty. Gen. Kamala Harris was locked in last-minute negotiations with servicers and officials from other states and the Obama administration as the deadline expired with no decision on whether they would sign on, according to a person familiar with the discussions.

Negotiations, however, remained fluid, said the person, who was not authorized to speak publicly and requested anonymity.

Officials in California, New York, Nevada, Delaware and other states appeared to feel little obligation to meet Miller’s deadline, which was set to see whether enough attorneys general would sign onto the deal to make a settlement feasible.


The long-sought deal would provide relief for homeowners and settle a host of investigations into the foreclosure paperwork practices of the five largest mortgage servicers.

The size of California’s mortgage market — about 14% of existing home loans nationwide, according to industry data company CoreLogic Inc. — makes Harris a major player in the down-to-the wire talks with Bank of America Corp., JPMorgan Chase & Co., Wells Fargo & Co., Citigroup Inc. and Ally Financial Inc.

Harris has been trying to strike more favorable terms for state residents hurt by the robo-signing fiasco two years ago in which mortgage servicers allegedly used illegal or questionable methods to sign foreclosure documents.

She walked away from a proposed deal in September because she said it was inadequate for Californians, but she and others would not disclose how much of the current $25-billion proposal was earmarked for the state.


Last month, Obama administration officials asked her to return to the negotiating table. Over the last week, Harris has been directly involved in discussions with the administration and several of the largest mortgage servicers, said the person familiar with the discussions.

Those talks have included numerous late-night and early-morning phone calls and meetings.

In a statement issued Sunday night, Harris said that progress was being made but negotiators had not yet reached a resolution.

One major stumbling block is California’s concern that the deal would release the large servicers from legal action, including violations of state laws, for issues that had not been thoroughly investigated, including securities probes related to losses sustained by the California Public Employees’ Retirement System, the nation’s largest public pension fund.


After Harris left the talks in September, the release from legal claims for the servicers was broadened to include issues related to the origination of mortgages. Harris wants to retain the ability to get restitution for such claims, particularly regarding predatory lending.

California also wants to make sure that financial restitution for homeowners goes to those hardest hit by the crisis. Harris is seeking to avoid the problems of an $8.5-billion settlement in 2008 that California and several other states reached with Bank of America’s Countrywide Financial unit.

That settlement requires banks only to offer to modify mortgages to borrowers. Harris wants provisions in the foreclosure settlement that ensure that homeowners get whatever relief is promised, the person familiar with the discussions said.

The proposed deal would provide an average of about $20,000 in relief for each of some 1 million homeowners nationwide, much of that in the form of reduced principal on their mortgage.


New York Atty. Gen. Eric Schneiderman, who has been concerned that the deal would grant the servicers too broad a release from other claims, also did not expect to announce a decision Monday, a spokesman said.

Nevada Atty. Gen. Catherine Cortez Masto said her office was “continuing to review the intricate draft settlement terms and advocating for improvements to address Nevada’s needs.”

Some Democratic lawmakers and liberal activist groups have pushed for tougher terms in the settlement and for the servicers to pay more money to help reduce principal on underwater mortgages.

“The good news is the president seems to be recognizing that reducing principal is key to rebooting the economy and may be key to his political future,” said George Goehl, executive director of National People’s Action, a network of community organizations that focus on housing and banking issues.


“The bad news is the sum. It’s a small drop in a big bucket,” he said.

Goehl hopes that the foreclosure paperwork settlement is followed by a much larger settlement of ongoing investigations into the causes of the mortgage market meltdown. He said that the foreclosure deal should not grant the mortgage servicers a release from claims in those broader investigations.

alejandro.lazo@latimes.com

jim.puzzanghera@latimes.com