Bankers and regulators are currently in negotiations regarding the penalties that will be levied upon the banks in the wake of the abuses uncovered in the "robo-signing" controversy.

Officials are currently weighing the ways that banks could pay penalties for their robo-signing abuses, and one of the ideas being closely examined is making the banks reduce borrower's loan principals. Though there is plenty of jockeying for position as the negotiations play out, at some level both the banks and officials can agree that penalties levied should avoid slowing the economic recovery. The difference in opinion in what would or would not slow down the recovery is very much a part of the ongoing negotiations.

Lowering the principal amount of borrowers loans would certainly help the real estate market as more and more borrowers are "underwater" on their loans. However, the banks argue that this tactic would prove costly to tax payers as it lumps the government backed Fannie Mae and Freddie Mac into the mix. Under that proposal the debate continues over who gets help and who may not get help, and the public outcry that could result from that. The banks also argue that some proposals would lead to a longer foreclosure process; this would delay the clearing out of foreclosure inventory resulting in a slower recovery.

Officials hope to have found clarity on the penalties by next week, so we'll have to keep an eye the proceedings…