Government officials are likely to lessen large banks' liabilities over how they handled delinquent Federal Housing Administration (FHA)-insured mortgages as part of a settlement with the largest mortgage servicers, according to people briefed on the negotiations.

The Department of Housing and Urban Development (HUD) has offered to release banks from liability relating to their loss-mitigation efforts on delinquent FHA-insured loans, the people said. The offer would apply to certain liabilities related to banks' servicing practices, but it is unclear whether the settlement would also provide relief from claims related to mortgage originations.

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