Banks Get Respite -- Foreclosure Crisis Put on Hold

NEW YORK (TheStreet) -- New York Attorney General Eric Schneiderman might be holding all the cards in a highly anticipated foreclosure settlement between the 50 states and the big banks.

The deadline for the states to agree on the deal has been extended once again to Thursday from Monday, and it looks like negotiations could still fall through. States including California, Florida, Nevada, Arizona and New York are yet to sign on to the deal and banks are reportedly balking at a recent lawsuit by the New York AG's office, according to recent press reports.

Last Friday, Schneiderman sued Bank of America(BAC), JPMorgan Chase(JPM) andWells Fargo(WFC) over their use of Mortgage Electronic Registration System or MERS, an electronic mortgage database, saying it resulted in deceptive and illegal practices, including false documents used in foreclosure proceedings.

The three banks, along with Citigroup(C) and Ally Financial- are at the center of the year-long negotiations with the states over their allegedly deceptive foreclosure practices, including robo-signing.

On Tuesday, Schneiderman said he would hold a conference at 6 p.m. regarding the foreclosure settlement only to cancel at the last minute without any explanation. Speculation is rampant as to what caused the sudden change of heart.

Reports suggest that the New York AG might be willing to sign the settlement if it means he can proceed with his MERS lawsuit. That might be a deal-breaker for banks, however, who have been seeking immunity from future mortgage liability claims from states and believe that claims related to MERS must be included in the mortgage settlement.

Through most of the year-long negotiations, it was clear that Schneiderman would not sign on to any deal if it interferes with his ability to go after banks independently. That has been a concern for California AG Kamala Harris too.

Analysts have, however, been less concerned about New York's involvement in the deal than they have about California.

"Even without New York, we believe that a national settlement will still be a positive for New York," KBW analyst Bose George argued in a report.