NEW YORK — A $10 billion settlement to resolve claims of foreclosure abuses by major lenders is expected to be announced Monday, after weeks of negotiations between federal regulators and 14 banks, several people with knowledge of the discussions said Sunday.
The settlement follows a sweeping deal in February between state attorneys general and five large mortgage lenders and covers abuses like flawed paperwork and botched loan modifications, the people said.
An estimated $3.75 billion will be distributed in cash relief to Americans who went through foreclosure in 2009 and 2010. Another $6 billion will be directed to homeowners who are in danger of losing their homes after falling behind on monthly payments.
The deal follows a week of feverish negotiations; it almost fell apart over the weekend. Some Federal Reserve officials threatened to scuttle it unless the banks agreed to pay an additional $300 million for their role in the 2008 financial crisis, which led to millions of foreclosures. Fed officials, the people said, argued for additional aid for homeowners ensnared in a flawed foreclosure process.
The $300 million was to come on top of the $10 billion payout, but was met with resistance from banks, according to the people with knowledge of the matter. Several banking officials balked at the additional demands, according to several current regulators.
Ultimately, the Federal Reserve officials backed down over the weekend, allowing the $10 billion pact to move forward ahead of bank earnings releases this month, the people said. Once it became clear the additional relief the Federal Reserve asked for might derail the deal, officials decided to withdraw it.
All 14 banks are expected to sign on.
Representatives from the Office of the Comptroller of the Currency, which led banking regulators in the negotiations, and the Federal Reserve declined to comment.
Some housing advocates that the settlement did not go far enough in providing relief.
Bruce Marks, chief executive of Neighborhood Assistance Corporation of America, was cautiously optimistic about the deal, but added that the ‘‘devil is in the details.’’
It is still unclear how the cash relief will be distributed among homeowners, but one immediate result of the settlement is the end of a troubled review of millions of loan files. As part of a consent order in April 2011, the comptroller’s office and the Federal Reserve mandated that banks hire independent consultants to comb through more than 4 million loan files to spot illegal fees, bungled loan modifications, and instances where borrowers lost their homes even though they were current on their payments. Only 323,000 homeowners submitted files to be reviewed.
Within the comptroller’s office, senior officials raised concerns that the reviews had grown bloated and inefficient, especially after each loan took more than 20 hours to review, up from original estimates of just eight hours per file.
The mounting costs of the reviews, up to $250 an hour, began to worry these banking regulators, according to several people with knowledge of the matter. So far, the Independent Foreclosure Review has cost the banks an estimated $1.5 billion, according to the people.
Most alarming to banking regulators was that the reviews were not producing meaningful instances of banks wrongfully seizing the homes of borrowers who were current on their payments, according to the people.
During the past week, officials from the Federal Reserve met with community groups and advocates to gather input around a settlement. Ultimately, it was those talks that induced the banking regulator to remove the request for additional funds, according to three people familiar with the matter. The thinking, these people said, was that broad relief was better than a lengthy review that had not yielded relief.
Told of the plans to stop the foreclosure reviews, some consumer advocates were concerned that the full extent of the damage to homeowners would never be known. Some of the advocates have questioned whether the banks are getting off easy because they selected and paid the consultants charged with examining their loans.