WASHINGTON — Federal and state prosecutors are in advanced negotiations with Bank of America in pursuit of a settlement that would forgive the bank for a broad range of past mortgage abuses in exchange for fines that would finance a significantly expanded relief program for struggling homeowners, according to three people with direct knowledge of the matter. The negotiations are separate from ongoing talks between the nation’s five largest mortgage handlers and the U.S. Department of Justice, the Department of Housing and Urban Development and all 50 state attorneys general. Those talks, led by Justice and involving all five companies, are seeking a settlement to resolve allegations of past wrongdoing like so-called “robo-signing,” in exchange for lower payments and reduced mortgages for potentially millions of troubled borrowers. But the options under discussion with Bank of America, the largest U.S. bank by assets, go beyond what’s on the table in the larger group talks. Justice, along with a small band of state legal officers, is pursuing an agreement that would have the bank forgive what participants described as a significant amount of mortgage principal owed by distressed borrowers in exchange for receiving an effective grant of immunity from government prosecution related to alleged mortgage and foreclosure wrongdoing. Only a small, select group of states are involved in pursuing the side deal with Bank of America, sources said. The other banks targeted by the government — JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial — are engaged in similar individual negotiations with prosecutors. None of those talks are at such an advanced stage, though. The agreement, if reached, could be used as a template for the other four banks. The state and federal prosecutors are operating on the assumption that if they could strike a deal with Bank of America — the nation’s largest mortgage servicer — that would compel the other large banks to go along or risk prosecution. Participants described the talks as fluid. Remaining issues include the scope of the release and the breadth of borrower relief, sources said. For example, it could involve a release from liability for alleged lending abuses; alleged failure to properly securitize home loans in accordance with state laws; alleged abuses of distressed borrowers who fell behind on their payments; alleged illegal behavior when foreclosing on those homeowners; immunity from suits involving a combination of those claims, or from all of them — an effective grant of immunity from prosecution. Prosecutors are contemplating giving Bank of America this kind of a broad release — something not yet on the table for the other institutions, sources said — but in exchange for more money to be used to finance mortgage modifications for a targeted set of borrowers. The bigger the release, the more money banks like BofA would be willing to shell out to lower payments, reduce outstanding amounts owed, and provide for borrowers to transition out of their homes and into rentals. Of course, the flip side of that is the banks could largely escape prosecution of alleged widespread wrongdoing. Other outstanding issues include whether government-controlled mortgage firms Fannie Mae and Freddie Mac are involved. The twin giants own or guarantee more than half of all outstanding home loans. But their federal regulator, the Federal Housing Finance Agency, has been reluctant to allow loans from Fannie or Freddie to be part of the deal, sources said. The two companies employed law firms that used robo-signers. If an accord were reached, which participants stress is a ways away, borrowers that met the following criteria would be eligible for some kind of assistance: Their mortgages would have to either be owned by Bank of America or be serviced by the bank on behalf of private investors. Fannie or Freddie loans would not be eligible; A current principal balance of 1 million or less; The homes would have to be occupied by the owner, so no investor-owned properties; And the borrowers’ monthly mortgage obligation would have to comprise at least 25 percent of their monthly income. Participants believe such a pool would lessen the risk posed by moral hazard, a scenario in which people escape consequences for destructive activity, thus encouraging more destructive activity in the future, sources said. Eligibility would also be limited to homeowners in distress, which can be defined by the number of days late a borrower is on his mortgage payments or whether their income is too low to support their payment obligations. The program would in part build upon a deal reached earlier this year between Justice and Bank of America to settle allegations that the lender wrongfully foreclosed on active-duty members of the military, sources said. An accord would provide a sense of finality to BofA’s shareholders, who have seen the value of their holdings erode over the past year as the bank’s mortgage-related losses have mounted. Shares are down 34 percent over the past year. By comparison, the 24-company KBW Bank Index, which tracks large banks like BofA, is down just 11 percent over the same time period. ***** Shahien Nasiripour is a senior business reporter for The Huffington Post. 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