Major mortgage servicers, including Wells Fargo and Bank of America, are more likely to avoid paying billions in penalties for their troubled foreclosure practices by striking deals with regulatory agencies before reaching agreements with states. The deals are seen as eroding the state attorneys general's leverage, according to Gilbert Schwartz, formerly an attorney at the Federal Reserve. "By settling with the banking agencies, it sets the upper limit on what the banks would be willing to do. This seems to have drawn a line in the sand," Mr. Schwartz said.

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