Attorneys general negotiating a settlement of a 50-state investigation of foreclosure practices have reached agreements with lenders on some terms while failing so far to reach an accord on potential monetary payments by the banks, said a person familiar with the talks.

The probe was triggered by claims of faulty foreclosure practices following the housing collapse which law enforcement officials said may violate state law. Significant progress has been made on a deal with lenders, which include Bank of America Corp. and JPMorgan Chase & Co., with agreements in principle reached on several issues, said the person, who didn’t specify the areas of accord as they may change as talks proceed.

It may take at least two months to reach a final agreement, said the person, who declined to be identified because the talks are private. An accord remains out of reach because states want principal reductions for borrowers, which is more than banks agreed to in deals reached with U.S. regulators last week, said Allison Schoenthal, a lawyer at Hogan Lovells in New York.

“Principal reductions I don’t think are going to be agreed to by banks, and I don’t think the banks see a need for a penalty when, in their view, they haven’t done anything wrong,” said Schoenthal, who represents lenders and servicers and isn’t involved in the talks.

Geoff Greenwood, a spokesman for Iowa Attorney General Tom Miller, who leads the negotiations for the states, declined to comment. Dan Frahm, a spokesman for Charlotte, North Carolina- based Bank of America, and Thomas Kelly, a spokesman for New York-based JPMorgan, didn’t respond to e-mails seeking comment.

Set Requirements

The 50 states, along with federal agencies including the Justice Department, seek to set requirements for how banks service loans and conduct home foreclosures.

Last month, the states submitted proposed settlement terms to five mortgage servicers, and have been meeting with bank officials to reach a final settlement. The proposal called in part for monetary payments by banks to go toward a loan modification program that would reduce loan principals for homeowners.

In a speech to a group of attorneys general earlier this month, Bank of America Chief Executive Officer Brian Moynihan said “broad-based” principal reductions aren’t “a sound policy decision for America.”

“Fairness is a major concern,” he said, according to the prepared text of the speech. “It’s hard to see how we could justify reducing principal for many delinquent customers who represent a small portion of borrowers, but not for the vast majority of our customers who have stayed current on their loans.”

Principal Reductions

Any agreement on principal reductions will depend on the size of the writedowns, the incentives for the servicers built into the settlement and other details, which continue to be sorted out, said the person close to the negotiations.

Miller said last month after a meeting between banks and state and federal officials that the two sides had “a long way to go” to reach an agreement.

The 14 mortgage servicing companies who reached deals with U.S. regulators agreed to conduct a review of loans that went into foreclosure in 2009 and 2010, and improve their procedures for modifying loans and seizing homes.

They also agreed to stop foreclosing on homes while negotiating lower mortgage payments for borrowers.

The regulators included the Office of the Comptroller of the Currency, the Fed, the Office of Thrift Supervision and the Federal Deposit Insurance Corp.

Signed Agreements

In addition to Bank of America and JPMorgan, also taking part in the regulator agreements were Wells Fargo & Co., Citigroup Inc., the GMAC unit of Ally Financial Inc., Aurora Bank FSB, EverBank Financial Corp., HSBC Holdings Plc, OneWest, MetLife Inc., PNC Financial Services Group Inc., Sovereign Bank, SunTrust Banks Inc., and US Bancorp.

Bank of America, JPMorgan, San Francisco-based Wells Fargo, New York-based Citigroup and Detroit-based Ally are the five companies involved in the talks with the 50 states.

The federal regulators said their agreements with the servicers are designed as a tool for state and federal law enforcement agencies as they seek a global settlement.

A flood of borrower delinquencies caused by subprime loans and the collapse of housing prices led servicers to rely on workers who failed to track paperwork or improperly signed legal documents to speed foreclosures.

Reports of so-called robo-signing prompted some lenders to temporarily suspend foreclosures last year. The banks didn’t admit or deny regulators’ findings as part of their agreements.

Iowa’s Miller said the settlements with regulators wouldn’t affect the larger state effort to reach a nationwide agreement.