Banks can be liable for $20 billion in civil fines, or to fund a comparable amount, for loan modifications of distressed borrowers. This will serve as a settlement for alleged mortgage servicing breakdowns, according to WSJ report today.

Terms of the administration's proposal include a commitment from mortgage servicers to reduce the loan balances of troubled borrowers who owe more than their homes are worth, people familiar with the matter said. The funds could be used to pay for these reductions in loan principal. However, it remains unclear who will be eligible for these principal reductions.

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