The settlement with five big banks would be part of a larger deal that the Office of the Comptroller of the Currency hopes will include 14 banks and total about $10 billion, the source said.

Such a settlement would address an outstanding issue that was left unsettled after the $25 billion deal that the banks reached in February with the Justice Department, housing authorities, and state attorneys general.

In 2011, the OCC had separately required the big banks to "look back" and compensate borrowers wrongfully foreclosed upon in 2009 and 2010. It appears that the case-by-case analysis is proving too cumbersome, and the banks are instead opting for a lump-sum settlement.

The top five mortgage lenders -- Bank of America Corp, Wells Fargo & Co, JPMorgan Chase & Co, Citigroup Inc and Ally Financial Inc -- may reach a deal in the coming days, the source said.

The largest banks would pay the majority of the $10 billion target. That money would be paid out to a group of borrowers foreclosed upon during the period of time covered by the review, said the source, who was not authorized to speak publicly.

The OCC and the banks are still negotiating how to calculate individual payouts, the source said, adding that regulators will give the banks credit for compensation they have already given borrowers as part of ongoing foreclosure reviews.

The New York Times first reported the pending deal.

"The Office of the Comptroller of the Currency is committed to ensuring the Independent Foreclosure Review proceeds efficiently and to ensuring harmed borrowers are compensated as quickly as possible," the OCC said in a statement.

Ally, Wells Fargo, JPMorgan, Bank of America and Citigroup declined to comment.

(Reporting by Aruna Viswanatha, with additional reporting by Sakthi Prasad, Rick Rothacker and Douwe Miedema; Editing by Leslie Gevirtz)

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