photoLast year, attorneys general from 50 states were working together to put pressure on mortgage lenders to clean up the foreclosure process and provide more help to consumers trying to stay in their homes despite financial difficulties.

The multi-state effort worked out a proposal that would offer relief to selected struggling homeowners by reducing the principal on their mortgage. It reportedly calls for banks to write down $20 billion in loan balances. (Mortgage lender complaints.)

But a lot has changed since last year. The November elections saw the ouster of several of the more aggressive AGs, including Richard Cordray of Ohio, who was later named to head the enforcement division of the new Consumer Financial Protection Bureau. Cordray was the first AG to sue a major loan servicer in the robo-signing scandal.

After newly-elected attorneys general took office in January, many displayed an abrupt change in their attitude towards consumer protection in general and the mortgage industry in particular. Now the 50-state coalition is falling apart with the defection of four attorneys general.

Florida's Pam Bondi, Greg Abbott of Texas, Kenneth Cuccinelli of Virginia and Alan Wilson of South Carolina have sent a four-page letter to Iowa Attorney General Tom Miller, who heads the multi-state effort.

The letters expresses the AGs' concern about the “moral hazard” posed by reducing loan principals to help select homeowners stay in their homes.

Miller's group earlier this month proposed a major increase in the number of mortgage modifications and called for prohibiting foreclosures while a modification is in progress.

Goes too far

But Bondi and her three colleagues say the proposed settlement goes too far and is unfair to homeowners who have kept up their payments.

"These proposals do a disservice to homeowners who, despite an economic downturn, have worked hard to maintain their mortgages," the letter states.

Miller's communications director Geoff Greenwood said the letter is under review.

"While all 50 attorneys general may agree on the pressing need to solve these very complicated problems, they may not all agree on all of the terms," Greenwood said.

The Palm Beach Post's editorial page differed sharply with Bondi. “Whose side is Bondi on? Not Florida's,” the paper thundered. It quoted a study which found that borrowers with equity in their homes default less often than those without equity.

If Florida Attorney General Pam Bondi has been paying attention, she knows that about 25 percent of Florida homeowners who are delinquent on their mortgages have decided to default. They have no equity in their homes, and don't believe that the market will improve soon enough for them ever to get above water,” the paper said.

In Virginia, the director of the Virginia Poverty Law Center said he is troubled that the talk of “moral hazards” seems prefaced on the assumption that the homeowners – not the banks – are the ones guilty of wrongdoing.

"They [the banks] seem to be getting the benefit of the doubt -- despite the fact that they have been caught falsifying documents and abusing the legal system," Speer said, according to the Roanoke News.