If you thought the foreclosure crisis had eased, think again. In July, a new study from RealtyTrac found that Illinois home foreclosure activity rose 33 percent in July compared to the previous month. A default, auction-sale, or bank repossession notice went out to one in every 269 properties in Illinois, a much sharper monthly rise than the national average. This activity comes after a four-year stretch in which foreclosures flooded the state, particularly in low-income portions of the Chicagoland region. And analysts don't expect the housing market to recover fully for another three years.

Pushed by housing advocates, state and local lawmakers have taken some steps to help stabilize shaken neighborhoods. In both 2009 and 2010, the General Assembly passed bills that, while watered down, added protections for struggling homeowners and communities and raised revenue to help local organizations that assist delinquent borrowers. Cook County officials approved a $3.5 million budget amendment to fund foreclosure mediation services, a program that has been ramping up this summer. In Chicago, aldermen are pushing legislation that would strengthen the city's existing vacant property ordinance and reroute more tax increment financing money into affordable housing developments. Local activists are even pressuring big banks to speed up the unduly slow modification process.

The real tragedy is that these efforts are being partially undercut by a baffling response to the housing collapse from the federal government. It's hard to overstate what an epic failure the Obama administration's Home Affordable Modification Program (HAMP) has been. Designed to reduce homeowner's monthly mortgage payments, the program has only helped 389,200 households get permanent mortgage modifications through mid-July. The $75 billion program is on pace to help about 1.5 million homeowners, far short of the initial goal of 4 million. Indeed, 520,800 participants have been dropped from the program altogether.

In Illinois, the odds of receiving help after enrolling are far worse than 50 percent. That's part of the reason why 29 percent of all home mortgages in the Chicago area were underwater during the year’s second quarter, meaning the homeowner owes the bank more than his or her home's equity is worth.

What's the problem? The system is voluntary and the lenders and servicers who have been offered financial incentives to alter the terms of mortgages just won't cooperate. For them, it's often more profitable to foreclose on homes outright. And since Congress neglected U.S. Sen. Dick Durbin's mortgage bankruptcy reform bill, which would have allowed bankruptcy judges to revise the terms of mortgages held by struggling homeowners, there's no risk that a judge will cut the banks out of the modification deal and just lower the terms of a mortgage independently. In other words, there's no pressure for lenders to act.

That dynamic could change in the coming months. Last week, Reuters reported that the Obama administration might direct the government-controlled lenders Fannie Mae and Freddie Mac to partially reduce the mortgage principals for underwater homeowners. The executive mandate would be analogous to Durbin's so-called "cram down" bill; essentially, the government would lower the amount of mortgage debt millions of Americans now owe. While it would be costly, the change would represent a huge improvement to HAMP. It's a development to keep an eye on.

In the meantime, the U.S. Treasury and U.S. Housing and Urban Development (HUD) Departments announced new programs on Wednesday they say will curb foreclosures caused by unemployment. Using funds from the TARP program, one will offer interest-free loans of up to $50,000 to qualified homeowners. Another will bolster the Hardest Hit Fund, which provides direct mortgage aid to the jobless in states with high unemployment rates. Illinois is slated to receive $166 million thanks to the Hardest Hit expansion. It's not an enormous amount of assistance, but it's certainly welcome.