Leading House Republicans balked yesterday at proposals being made by attorneys general from all 50 states and federal regulators in an effort to reform foreclosure practices among U.S. banks. The 27-page proposal comes as a result of a state and federal probe into mortgage lender practices such as “robo-signing” and backdating documents illegally.

The proposal also comes at a time when public anger is growing over widespread reports of banks chronically ignoring troubled borrowers seeking loan modification and losing paperwork regarding such requests.

The negotiations are being held with five large U.S. banks—Bank of America, Citigroup, JPMorgan Chase, Wells Fargo, and GMAC—which together hold 59% of U.S. home mortgages.

The terms proposed include forbidding banks from starting foreclosure proceedings on a property if the borrower is actively trying to modify the mortgage, requiring lenders to modify a loan to avoid foreclosure if the modification ultimately makes the loan more valuable for the mortgage holder than foreclosure would, and reducing loan principal for troubled borrowers, according to reports from The Wall Street Journal, Reuters, and others.

The terms are also reported to include requiring lenders to recognize requests for mortgage modification within 10 days, increasing oversight of law firms and vendors involved in foreclosure proceedings, and limiting fees.

While a set financial penalty for banks has not yet been established, some officials have supported a fine of up to $20 billion dollars to be imposed on the lenders—money that would go to reducing principal for troubled homeowners.

In a letter sent to Treasury Secretary Timothy Geithner yesterday, House Republicans questioning the authority the states and federal agencies have to require lenders to make principal writedowns without legislation by Congress.

“The breadth and scope of the draft settlement proposal raise significant concerns about its effect on the financial system, as well as concerns that the administration and state agencies are attempting to legislate through litigation,” the lawmakers wrote.

The letter was signed by Spencer Bachus, chairman of the Financial Services Committee, and panel members Scott Garrett, Randy Neugebauer, and Patrick McHenry, according to Reuters. Meanwhile, the attorneys general’s proposal has the backing of HUD, the Justice Department, the Federal Trade Commission, and Treasury Department staff forming the Consumer Financial Protection Bureau.

Bank of America has also begun pushing back, arguing that writing off mortgage debt for troubled homeowners would create a mortal hazard, according to The New York Times.

“There’s a core problem that if you start to help certain people and don’t help other people, it’s going to be very hard to explain the difference,” said Brian Moynihan, Bank of America’s CEO, according to the Times. “Our duty is to have a fair modification process.”

Claire Easley is senior editor, online, for Builder.

Learn more about markets featured in this article: Greenville, SC.