The state attorneys general investigating abuses in the mortgage servicing industry said Monday that as they hammer out details of a massive settlement with banks, their main objective remains fixing a system that has subjected consumers to confusion and financial strife.

"What we're really trying to do is change a dysfunctional system," said Iowa Attorney General Tom Miller, the point man for a 50-state effort. "We really want to try and change all that."

The extensive foreclosure problems - from flawed or fraudulent paperwork to questions about improper or incomplete loan transfers - surfaced in September, when firms such as Bank of America and Ally Financial abruptly halted foreclosures. And others followed suit.

A core group of attorneys general has been working on the issue since October, Miller said, communicating regularly with the banks accused of the shoddy practices and nearly a dozen federal agencies that have been conducting their own inquiries.

Last week, state attorneys general, joined by a handful of federal agencies that included the Justice Department and the new Consumer Financial Protection Bureau, submitted a 27-page term sheet obtained by The Washington Post of proposed changes to five of the nation's largest banks as its opening bid in what is expected to be a series of intense negotiations beginning in coming days.

The proposals attempt to address wide-ranging complaints about the servicing process. One would require the servicers to provide a single point of contact for borrowers looking to modify their loans. Another would require them to develop a portal that would allow borrowers to submit and track documents electronically in real time.

The document also spells out the conditions under which servicers should consider principal reductions for certain borrowers. It also suggests that servicers partner with retailers such as Wal-Mart and FedEx Kinko's, so borrowers can go there to copy, fax, scan, mail or e-mail documents to servicers free of charge.

A common complaint from borrowers is that they often receive foreclosure notices even as they are negotiating in good faith with servicers to modify their loans. The attorneys general want to ban this dual-track process. As for borrowers enrolled in modification programs, their modifications should convert to permanent status if they have made three payments on time.

Several attorneys general acknowledged that differences of opinion remain among various stakeholders on two key issues - how to structure a feasible modification program and the precise amount of penalties that should be levied on the banks, some of which could go toward principal reductions for borrowers.

"We've struggled with that," Miller said. "We have to recognize that whatever the proposal is, it's going to have some limitations; it's going to leave some people out. . . . At some point, we and the federal agencies will agree on the modification program."

Miller also played down the prospect for a speedy settlement with banks, saying that many legal issues remain unresolved.

"I'm hoping we can wrap it up in a couple of months," Miller said. "That's a hope, but we're going to move as fast as we can."