Banks are crying uncle under the weight of federal and state probes and offering up a 5 billion dollar settlement offer to stop the investigation of illegal foreclosure tactics. The same folks who spawned the creation of the term “robo-signers”, the banks are offering the settlement to avoid two dreaded outcomes: participation in a federally-mandated reduction in the principal balance of outstanding loans and facing criminal charges.

The proposal made by banks yesterday during settlement talks in Washington came after state attorneys general and federal officials offered revised settlement terms. In a new proposal, the feds called for a fund, administered by state and federal officials, that would in part pay for principal write downs. Attorneys general haven’t made a proposal for a payment by banks yet, according to Business Week.

Last fall, revelations came to light of mortgage companies using “robo-signers” to falsely swear they had reviewed foreclosure paperwork submitted to the courts. In some cases, the robo-signers had signed thousands of affidavits a day. In one case, Bank of America actually foreclosed on 4 people who didn’t even have a mortgage. The revelations forced many of the major banks to completely halt foreclosures in 23 states. In October 2010, Bank of America issued a nationwide halt on foreclosures. For the rest of October 2010, in a series of news-grabbing headlines, bank after bank halted their foreclosure proceedings due to questions about their paperwork.

The banks are eager to throw money at their problems not only avoid costly principal write downs, but because the use of robo-signers is possibly a violation of state laws. The mortgage servicers consisted of Bank of America, JP Morgan Chase, Citigroup Inc., Wells Fargo & Co. and Ally Financial Inc. According to the Businessweek article, the five companies service 59 percent of U.S. home loans.

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