By RUTH SIMON and NICK TIMIRAOS
Efforts to forge a consensus among government officials seeking to negotiate a foreclosure settlement with banks are stumbling in the face of New York State Attorney General Eric Schneiderman's efforts to include both consumer and investor claims.Mr. Schneiderman's approach is opposed by some government officials involved in the negotiations. They believe the deal should be limited to foreclosures and mortgage servicing, while leaving New York and other states free to pursue claims related to the packaging of mortgages into securities. Mr. Schneiderman's predecessors have used the Martin Act, a powerful state law, to pursue a variety of alleged wrongdoings by Wall Street.
The split between Mr. Schneiderman and other attorneys general complicates the Obama administration's months-long push for banks to pay penalties of up to $25 billion to resolve the government's investigation of alleged foreclosure-related abuses. Some other state attorneys general also have expressed concerns about the potential settlement. "Attorney General Schneiderman has and continues to raise important and legitimate concerns," Delaware Attorney General Beau Biden said in a statement.
Associated Press 
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New York Attorney General Eric Schneiderman wants to include consumer and investor claims in a deal.
+"The attorney general is committed to a comprehensive resolution," a spokesman for Mr. Schneiderman said. The spokesman added that Mr. Schneiderman's investigation "has already produced results, and we are moving forward in an expeditious fashion."
State and federal officials fear Mr. Schneiderman's effort to merge investor and borrower claims would complicate and further delay any resolution of their investigation, launched last fall amid reports of "robo-signing"—where employees were approving legal documents without properly reviewing them—and other mortgage-servicing irregularities. U.S. officials say it would also push the price tag far beyond the $20 billion to $25 billion that the administration and attorneys general have set as their target.
"We are very far down the road for a settlement that will create servicing standards and will also result in a significant financial contribution towards helping homeowners and the housing market more generally," an administration official said.
One major source of disagreement is whether a settlement would impede Mr. Schneiderman's efforts. Even with an agreement, Mr. Schneiderman "can proceed with what he wants to do," the official added. "There shouldn't be a conflict here." But the spokesman for Mr. Schneiderman said the release language proposed by state officials "would unequivocally preclude Attorney General Schneiderman and other state prosecutors from following the facts where they lead."
Adding investor claims could delay a settlement by as much as two years, said one state official involved in the negotiations. "We think, quite frankly, it's a terrible idea," he said. "This multistate [effort] is about robo-signing. It's about servicing. We're interested in helping homeowners and preventing foreclosures. We're not interested in helping hedge funds or other private investors recover their losses."
Differences of opinion among attorneys general are common in multistate negotiations. But such disagreements rarely are made public until an agreement is reached.
Tensions between Mr. Schneiderman, who took office in January, and other state officials have increased in recent months. On Tuesday, Mr. Schneiderman was removed from the executive committee overseeing the foreclosure negotiations for the states.
Earlier this summer, New York turned down an invitation to be part of a small group of attorneys general engaged in face-to-face negotiations with the banks, according to Iowa Attorney General Tom Miller, who is spearheading the 50-state investigation. Since that time, New York "has actively worked to undermine" the multistate group, Mr. Miller said in a statement.
State officials involved in the negotiations say Mr. Schneiderman's office never made the case for its position to the executive committee, even though it was a part of that group. Instead, the office "went to the press and outside groups to advance his position" at the expense of the multistate effort, said one official involved in the discussions. "He has gone out of his way to repeatedly and publicly to attack the multi-state when he is free at any time to pursue whatever investigations and lawsuits he wants to."
Both sides have tried to court consumer and labor groups. Mr. Schneiderman's chief of staff, Neal Kwatra, a former union official, held a conference call with grassroots groups in late July, according to a letter reviewed by The Wall Street Journal. State and federal officials have also reached out to various parties in an effort to hold a deal together.
"We regularly consult with a wide range of experts," a spokesman for Mr. Schneiderman said.
Mr. Schneiderman "keeps saying that consumers and investors have shared interests and should be working together," said Ira Rheingold, executive director of the National Association of Consumer Advocates. "Both sides have reached out to us," Mr. Rheingold added.
Consumer groups and bond investors have expressed dismay with servicing practices, but their interests are likely to diverge when it comes to crafting a settlement and to allocating funds collected as part of a deal. Consumer groups have pushed hard to cut loan balances, an approach that could add to lossesfor some bond investors. Investors want to speed the foreclosure process, while consumer groups want to give borrowers more time to resolve their problems.
Bringing in investor claims "is a highly risky way of trying to get a better deal for homeowners because the investors have really different interests," says Prentiss Cox, a professor of law at the University of Minnesota and former assistant attorney general. "The only way that works is if you have a very clear idea of what your end game is."