U.S. banks are due to meet with state attorneys general and federal agencies on Tuesday as they seek to reach a settlement over problems in the mortgage servicing industry.

A key outstanding issue is what amount the banks will have to pay to settle charges of widespread problems in how and when they decided to foreclose on troubled borrowers.

Many states and federal agencies are pushing to have the funds go toward writing down the loan balances in an effort to keep borrowers in their homes.

A spokesman for Iowa Attorney General Tom Miller, who is heading up the state probe, said the meeting is scheduled to last one day.

We'll probably be discussing some money, said Geoff Greenwood, Miller's spokesman.

The states will be joined at the table by the departments of Justice and Housing and Urban Development and they are negotiating with Bank of America, JPMorgan Chase, Citigroup, Wells Fargo and Ally Financial.

Federal regulators and state attorneys general have been investigating bank mortgage and foreclosure practices that came to light last year, including the use of robo-signers to sign hundreds of unread foreclosure documents a day.

Earlier this month the states and their partner federal agencies sent the banks a revised proposal that included how states and the federal government would use whatever penalty the banks agree to pay, as well as earlier proposals for overhauling how servicers deal with struggling homeowners.

The proposal included using the funds for reducing the balance of troubled homeowners' loans, but the funds would also be used for other programs.

Greenwood said no updated settlement proposal was sent ahead of Tuesday's talks.

The government agencies involved in the talks had discussed earlier this year making the banks pay in the range of $20 billion as part of the settlement. The banks floated the idea earlier this month of settling for $5 billion, according to a source familiar with the negotiations.

In April, federal banking regulators separately settled with the 14 largest mortgage servicers, including the banks involved in the talks with the states.

That settlement did not include a fine but regulators have said monetary penalties are forthcoming.

The settlement with bank regulators required banks to overhaul their servicing practices and hire an outside consultant to review foreclosure actions taken in 2009 and 2010, to look for any errors.

(Reporting by Dave Clarke; Editing by Tim Dobbyn)

Foreclosures