Progress Illinois

Sen. Dick Durbin has spent weeks lambasting the banking industry for defeating his mortgage bankruptcy reform bill. Considering that the banks have poured millions of dollars into a lobbying campaign (through April of this year, the political action committees for six of the largest industry trade associations raised $1.6 million and spent $1.7 million) and have refused to accept even a watered-down version of the cramdown bill, the criticism is well deserved. But the Obama administration, which declined to champion Durbin's bill, shares some of the blame as well. The Hill has the story:

Senate Majority Whip Dick Durbin (D-Ill.) criticized the Obama administration Tuesday for not doing enough to stem foreclosures.

Durbin, who has pushed for legislation allowing judges to modify mortgages for troubled homeowners, said he remains "skeptical that the voluntary approach to mortgage [modifications] will save us from this crisis."

"The previous administration and so far this administration has failed to come up with an approach that could dramatically turn around this increasing number of foreclosures," Durbin told Treasury Secretary Timothy Geithner during a Senate Appropriations subcommittee hearing.

What's perplexing about the White House's failure to get behind Durbin's bill is that it is the "stick" in the administration's Making Home Afforable program, as the American Prospect's Tim Fernholz recently pointed out:

In February, the administration launched Making Home Affordable, a program designed to provide refinancing to a large pool of borrowers and to set new standards for modifying troubled loans. Because these modifications require lenders to take some loss, the administration provided them with generous incentive fees. But a stick was included alongside those carrots: If lenders couldn't modify loans enough to keep borrowers out of bankruptcy, then changes in bankruptcy law would allow judges to make the terms of the loan more favorable to borrowers. The change didn't appeal to mortgage bankers, and they set out to convince Congress to reject the idea.

Meanwhile, by favoring loan modification programs that seek to reduce monthly payments, the Obama administration is still ignoring a large problem of negative equity. Currently, 15.4 million homeowners are "underwater" borrowers, meaning they owe more on their mortgages than their homes are worth. Even if those payments are reduced, as the New York Times wrote last week, a lack of home equity puts them at risk of default.

During the hearing, Durbin cited projections suggesting there could be as many as eight million foreclosures in coming years. With that threat looming, now would be a good time for the White House to buck the banks and find ways to protect homeowners.