As first reported by the Wall Street Journal, the AG's are proposing a refinance plan for underwater borrowers, trying to get banks to bring down interest rates on mortgages for those who owe far more than their homes are presently worth; that's around 10.9 million borrowers, according to CoreLogic, but sources say it wouldn't be all of them. It would, "target a finite number of borrowers who are current on their mortgages," according to my source.
My source then went on to explain that this is a plan previously pushed by the California state attorney general, who has dropped out of the negotiations over issues surrounding banks' release from future liability (the California AG did not comment in the WSJ article but claimed they had not seen said proposal). New York and Massachusetts have done the same. Apparently this could, "bring California back to the table," says my source, because the California AG finds it, "intriguing."
Well I don't find it intriguing at all. It's the same plan the Obama administration is "pursuing" with the regulator of Fannie Mae and Freddie Mac. They also want an underwater refi plan, but so far the idea has been rife with difficult details that threaten to scuttle its ultimate impact. The AG proposal would be just for bank-owned loans not backed by Fannie or Freddie, so it would apply to about 20 percent of the market.
My source says the talks are getting closer to a deal, even without some of the AG's signing on. It will include some principal write down on loans, but the future legal liability language is still in play, release from securitization issues is not clear, and the banks aren't exactly thrilled with any of it. So now, at the last minute, they throw in a refi proposal, which maybe the banks will like, likely they won't.