A key aspect to initializing recovery in the housing market will be the resolution of the "shadow inventory" of homes in foreclosure or heading to foreclosure that could drain on the market for some time.  HUD Secretary Shaun Donovan stated in an article to the Los Angeles Times that a settlement with major banks could come within a matter of weeks.


The nation's largest banks has offered a proposal last month to pay up to $5 billion to settle claims by federal and state agencies related to improper mortgage-servicing practices. However, Donovan stated that this amount, a counter proposal to the $20 billion sought by regulators and state attorney's general, was unacceptable.

The comments from Secretary Donovan came after Bank of America CEO Brian Moynihan was quoted by Reuters as saying the settlement process would probably be drawn out longer than people would think.

One aspect of the negotiations is whether the banks will include principle write-downs in the settlement to help modify loans that are in foreclosure.  The banks have not previously supported this component. 

A coalition of investigators have provided a report by HUD's Office of the Inspector General that suggests the banks could face at least $17 billion in civil claims, in addition to billions in potential claims from federal agencies, if they fail to reach a settlement.  The report could represent the impetus for the current round of settlement talks.