For years, Sen. Richard Durbin, D-Ill., and consumer advocates tried to enact legislation that would allow judges to reduce mortgage principal in bankruptcy proceedings, only to be repeatedly defeated by the banking industry.

But if state attorneys general prevail in settlement talks with the five largest mortgage servicers, Durbin may finally get his wish — with a twist. In addition to pushing banks to reduce mortgage debt in bankruptcy, the 27-page draft agreement would give Elizabeth Warren, the interim head of the Consumer Financial Protection Bureau (CFPB), new authority to determine if all borrowers should receive a principal writedown.

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