The role of fraud in the housing crisis is getting attention this week at a Chicago gathering of attorneys general from states across the country.

Since last year, the AGs have been looking into procedures of the nation’s largest mortgage servicers, led by Bank of America, Wells Fargo and JPMorgan Chase. Now the AGs and federal officials are negotiating with the banks to set lending and foreclosure standards.

A settlement the officials proposed in March would have the banks fund loan modifications.

“Without that kind of mandatory principal writedown, neither the housing market nor the economy as a whole can recover from what the big banks have put us into in the first place,” says Rev. Robert Bushey, pastor of Central Christian Church in the Kankakee County town of Bourbonnais.

Bushey helps lead Illinois People’s Action, a faith-based group that demonstrated Tuesday afternoon outside a downtown hotel where the AGs are meeting.

The activists seem to have an ally in the meeting’s host, Illinois Attorney General Lisa Madigan, a Democrat. “A settlement should require banks to write down the principal on mortgages so that families can afford their payments and have a fighting chance to save their homes,” Madigan’s office said in a statement to WBEZ.

But some Republican AGs say mortgage writedowns could encourage too many borrowers to halt their payments — a threat to the industry. Bloomberg reported Tuesday that at least eight attorneys general have publicly opposed the writedowns as part of any deal.

A new report, meanwhile, suggests that the housing crisis is reaching far into the middle class. Chicago-based National People’s Action reported that prime-interest-rate mortgages have accounted for 48 percent of Cook County foreclosures since January of last year.

The AGs will wrap up their three-day meeting Wednesday.