Mortgage servicers may have to review as much as $535 billion in loans for possible remediation to borrowers who suffered financially from improper foreclosures, according to an estimate from the investment bank Keefe, Bruyette & Woods.

Remediation was one of the requirements of the consent orders signed between 14 mortgage servicers and the Office of the Comptroller of the Currency and the Federal Reserve after an investigation into foreclosure problems. The regulators found the problem had spread industry wide.

KBW said the amount of remediation could be lower given how many loans the servicers reviewed before the settlement. Ally Financial (GJM: 22.50 -0.31%) and other servicers have maintained that they did not wrongfully foreclose on any borrower. Actual losses from the remediation could be as low $5.4 billion, spread out over the 14 servicers, KBW said.

"In addition, investors may be unsettled by the difficulty associated with estimating the impact to mortgage servicing revenues from higher servicing expenses and monetary remediation and this could be an overhang on the shares of companies involved until all is settled," KBW said.

Washington thinktank MFGlobal said many of the servicers had already begun implementing some of the changes in the consent orders such as putting borrowers through the modification process before foreclosure. But analysts there said the settlement could undermine the still ongoing negotiations between the 50 state attorneys general and the servicers.

"The deal incorporates much of what the states wanted except for the $20 billion penalty, the principal write down requirement, and the triple damages threat for even minor violations of the settlement," MFGlobal said. "The banks will never agree to any of those conditions."

If the negotiations breakdown, litigation may follow. But Iowa AG Tom Miller, who is leading the negotiations, said Wednesday that the OCC and Fed settlement would not affect his. Both regulators said as much the same day.

Some lawmakers, however, believe the OCC and Fed settlement didn't go far enough. Sen. Jack Reed (D-R.I.) said the enforcement actions should have been done years ago.

"Today it comes off as too little, too late," Reed said. "The vague and toothless remedies outlined by the OCC’s consent orders merely require banks to do what they should have already been doing."

Rep. Maxine Waters (D-Calif.) said she was disappointed by the settlement but that she wasn't surprised given their failure during the foreclosure crisis.

"They fail to hold servicers accountable for the egregious, and often illegal, actions taken against American homeowners during the worst economic crisis since the Great Depression. They are lacking in direction and standards, and all existing evidence points to the fact that our regulators’ enforcement will be weak," Waters said.

Write to Jon Prior.

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