Last week's Bank of America proposed settlement might prove to be an interesting turn of events for the U.S. attorneys general that have been seeking compensation for borrowers who were "victimized" by servicing misconduct.

A New York  Post  news report today suggested that the 50-state attorneys general that have been working toward a settlement with the biggest U.S. mortgage servicers might be close to reaching an agreement that falls far beyond the $20 billion to $25 billion originally envisioned when the robo-signing scandal first broke earlier this year.  

According to the news report,  the fund could now be as large as $60 billion and will be used to compensate borrowers  who fell victim to servicing misconduct and would also fund programs to help homeowners avoid foreclosure.  A portion of the fund would also be applied toward principal reductions.

According to the New York Post report, the settlement could be announced in the next few weeks.  

Securitization market analysts said that the $60 billion figure seemed excessive given that servicers had originally rejected the $20 billion suggested earlier in the year. The financial markets have also not priced in any anxiety over the number.

In June, the state attorneys general said that negotiations over the settlement fund could not be concluded and it was likely that the next step would be to sue servicers to prompt them to take action. 

Bloomberg report said that Illinois Attorney General Lisa Madigan and North Carolina Attorney General Roy Cooper are standing behind the litigation option if settlement talks with the largest mortgage servicers were to break down.  

"There could be breakaway groups that may opt to sue but there are so many diverging views on how to handle the servicing misconduct that it sometimes seems like the AGs don't even know what to do," an ASR market source said.

Sources said that an interesting point is that the more servicing standards that are put in place, the harder it will be for the attorneys general to dictate how they believe servicing should be conducted down the line. 

An example of increased rules would be Fannie Mae's new standard for mortgage servicers regarding the management of delinquent loans, default prevention and foreclosure time frames under the Federal Housing Finance Agency's servicing alignment initiative.

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