After a year of discordant negotiations, a settlement is said to be imminent between U.S. states and the nation’s largest mortgage lenders that would allow the banks to walk away from America’s foreclosure mess for a reported $25 billion.

Reuters quotes sources close to the negotiations who say an agreement could be reached by the end of the month between state attorneys general and several federal agencies, including Fannie Mae and Freddy Mac, on one side and major mortgage lenders Ally Financial, Bank of America, Citigroup, JP Morgan Chase and Wells Fargo on the other.

Judging by the Reuters report, the banks recently agreed to up the ante from $20 billion to $25 billion in exchange for blanket immunity on all past foreclosure misdeeds.

“About 70 or 80 percent of that previous amount had been slated to settle federal claims and would be used by the banks to help troubled borrowers with a menu of options to include principal writedowns, cash for transition to rental housing and other forms of assistance,” Reuters says.

Under terms of the settlement, the banks would get “broad legal immunity from state lawsuits in exchange for refinancing underwater loans, those mortgages where borrowers owe more than their homes are worth.”

States had originally only considered immunity for shortcuts taken by mortgage servicing companies, including the “robosigning” of documents to speed delinquent homeowners into foreclosure.

But the banks, increasingly under siege from mounting lawsuits, held out for more.

“In recent days, the state attorneys general agreed to release major banks from claims that they made legal errors when first originating the loans, such as approving loans for borrowers without verifying any income,” Reuters says.

Translation: a free pass for prior subprime lending shenanigans.

In exchange for legal immunity, the banks reportedly have agreed to refinance mortgages for borrowers who are current on their payments but owe more than their homes are worth.

“Around 20 percent of all mortgages are bank-owned. Those loans which are underwater are generally not currently eligible for refinancing,” according to Reuters.

It is unclear how many homeowners would qualify for such a refi however.

Would you cheer this settlement? After all, most U.S. housing markets continue to struggle under the weight of the foreclosure mess.

Or are you outraged that America’s banking giants are being allowed to simply write a check and walk away from a mess they helped create?

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