State attorneys general behind a nationwide wrongful-foreclosure suit against major banks have felt the void left by California since its withdrawal from talks three weeks ago. As a result, leaders of the effort have ramped up persuasion tactics to get the Golden State back on board.

The Los Angeles Times reported Saturday that Iowa Attorney General Tom Miller met in Washington with five top mortgage servicers about a new refinancing proposal.

Under the proposal, Miller and the other attorneys general want the banks to devote $5 billion to refinance the mortgages of as many as 300,000 "underwater" U.S. homeowners, those who owe more than their houses are worth, according to a person familiar with the plan who requested anonymity because he was not authorized to speak on the matter.

The homeowners would have to be up to date on their payments and would get new mortgages with lower interest rates, a move intended to ease those homeowners' finances. The banks have countered with a $2-billion deal aimed at reaching up to 150,000 homeowners.

The refinancing plan would be added to the already $20-billion proposal the states have negotiated, which includes principal reduction for certain homeowners and mortgage servicing and foreclosure reforms.

Miller's plan comes just before the Obama administration's, the details of which will be announced sometime in the next few weeks.

Citing research by CoreLogic Inc., the Times reported California has roughly 2.1 million underwater borrowers. Despite this dismaying figure, Attorney General Kamala Haris pulled out of settlement negotiations because California was "being asked for a broader release of claims than we can accept and to excuse conduct that has not been adequately investigated."

Harris' office has not yet said whether the perks of Miller's plan will be enough to persuade the state to rejoin the effort.

According to the Times' report:

Kevin Stein, associate director of the California Reinvestment Coalition, a group that applauded Harris' decision to walk away from the negotiations, said the state would be giving up too much for too little if it signed on to the new proposal.

"Releasing origination claims is a big deal — that is where the crisis started," Stein said. "In some ways we are more concerned about people more clearly at risk of foreclosure, and what we are really interested in is principal reduction."

Harris has left the door open to signing on to a bigger settlement, and one person familiar with the negotiations in Washington said that the banks believe California is likely to return to the talks because robo-signing, which often involved the mass signing of affidavits and other court documents, hasn't been proved to be pervasive in the Golden State.

California isn't alone in its resistance to the deal; New York, Massachusetts, Nevada, Delaware, Kentucky and Minnesota are also in opposition to the release from liability offered to banks.

Harris has taken matters into her own hands, establishing a strike force to investigate mortgage fraud. Her office subpoenaed Bank of America this week to find whether the bank and its subsidiary, Countrywide Financial, "sold investments backed by risky mortgages to institutional and private investors in California under false pretenses."

Though the consensus seems to be that Harris will eventually rejoin settlement negotiations, a desire to maintain authority over her own probe initiative may prove to be a significant obstacle despite Miller’s best courting efforts.

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