States are crafting a scaled-back mortgage abuses settlement with top U.S. banks that would exclude California, one of the states hardest hit by foreclosures and falling home prices. The smaller settlement would mean that the big banks would pay less in fines. The proposed $25 billion deal could come down by as much as a quarter without California, according to people familiar with the discussions. But it would also keep the banks exposed to legal claims in that state's large, distressed market.