State attorneys general and federal officials hope to reach a final settlement with banks over their mortgage-servicing and foreclosure practices within two months, Bloomberg reported.

Those talks involve banks and mortgage investors, Iowa Attorney General Tom Miller said.

Miller, who is heading an investigation of the foreclosure crisis by chief state attorneys of all 50 states, said any loan-modification program that results from the effort to repair the “dysfunctional” system will have “limitations.”

A 27-page settlement proposal was submitted in an effort to kick off negotiations, which are private.

Miller met with other state attorneys general March 7 in Washington, D.C.,where they were to get an update on the investigation into the mortgage-servicing practices of banks and the efforts to reach a settlement that could overhaul their procedures. The states began the probe last year after complaints that financial institutions submitted faulty paperwork in foreclosure cases.

Homeowner activists protested outside the meeting of the attorneys general, criticizing banks and demanding that state and federal officials reach a tough settlement with the companies. They also called for criminal prosecutions.

The proposal given to the banks last weekcalls for “a binding legal requirement” for how they service loans and conduct home foreclosures, said Geoff Greenwood, a spokesman for Miller.

The proposal didn’t include the monetary penalties officials would seek.

Tam Ormiston, an Iowa deputy attorney general, didn’t rule out criminal prosecutions.

“The question’s been raised for all regulators and all enforcement officials,” he said. “I don’t know how that’s going to play out.”