Consumer advocates picked up a huge win last week when the House passed a package (H.R. 4173) of financial reforms -- including the creation of the watchdog Consumer Financial Protection Agency -- that will strengthen federal regulation of Wall Street and banks nationwide. It's been over a year since the Troubled Asset Relief Program (TARP) passed Congress and this is the first major bill to directly address the underlying causes of the financial meltdown that has devastated our economy.

The bill is certainly a step in the right direction.  For example, it applies regulation to some derivatives and creates a bailout fund supported by large financial firms.  That being said, it's nowhere near perfect. One major flaw is that it allows federal regulators to block state officials from enforcing more stringent consumer protections within their borders.

The House also defeated, by a 241-188 vote, an amendment that would have allowed bankruptcy judges to restructure the terms of mortgage loans for borrowers facing foreclosure. This type of assistance -- championed by Sen. Dick Durbin in recent years -- is needed now more than ever. Earlier this month, the Congressional Oversight Panel disclosed that only 10,187 homeowners have received permanent mortgage modifications as part of the Obama administration's voluntary program, with monthly foreclosures still far surpassing the number of new trial modifications.

Five Illinois Democrats -- Reps. Bobby Rush, Dan Lipinski, Jerry Costello, Debbie Halvorson, and Mike Quigley -- joined with Republicans in opposition to the amendment. Here's Quigley's comment on the vote, passed along over email:

When you dig into the details of judicial modification, you see that what may reduce foreclosures in the short-term will have harmful long-term effects, to both our housing market and working families.  This amendment actually makes it more difficult for people to get an affordable mortgage and own a home. We want to avoid foreclosures today, but not in a way that creates new problems for tomorrow.

Quigley's justification is similar to that of the banking industry, who have long contended by modifying the terms after the initial agreement was signed, the loan's inherent risk increases, which means borrowers will increase costs on other loans and will tighten their credit standards. Georgetown University's Adam Levitin disputes this claim, however, pointing to the pricing of mortgages that currently permit modifications of this sort, such as second homes.

Halvorson communications director Ryan Vanderbilt sent over a similar explanation of her vote:

The Congresswoman was concerned that at this time the amendment would further the shortage of credit availability for homeowners and small businesses in her district.  Although large banks should and would be able to absorb the costs associated with forced mortgage modification, smaller community banks would face extreme difficulties during this already difficult time in absorbing the costs.  Subsequently, small businesses that rely on credit from their local banks could see their prices increase or available credit further diminished, and those are consequences we cannot afford at a time when we’re encouraging small businesses to grow and create jobs.

It should be noted that the amendment defeated last week was identical to legislation that passed the House in March. Quigley was not yet sworn in at the time, but Halvorson, Rush, Lipinski, and Costello were there and all four of them supported the bill at that time.  In a follow-up email, we asked Rep. Halvorson's office for an explanation of her earlier vote and will update the post if they respond.