Over 290,000 homeowners were put on the road to foreclosure in the month of March by the loan service providers, yet another record when it comes to foreclosures. A lot of the people on the brink of foreclosure are also dangerously close to having to file for bankruptcy. There had been hope that bankruptcy judges would be given the power to adjust principal amounts, but that provision of President Obama’s foreclosure prevention plan was shot down in the Senate.

The plan was for judges to be able to adjust what people owed on their homes in order to persuade lenders to work with borrowers to make loan terms manageable. If a lender knew that a bankruptcy judge could change the terms of a loan, that lender would do everything in their power to help borrowers avoid bankruptcy. Judges will not have that power at this point after the Senate vote, at least for now.

The financial industry fought hard against the Obama proposal, claiming that giving judges that kind of power would actually make the housing market even more unstable and unpredictable and could also cause interest rates to rise. Lawmakers appeared to listen to this side of the argument, as well as the growing concern that homeowners that have struggled and sacrificed to stay up to date on their payments would feel that they were being punished for being responsible.

According to recent projections from Moody’s, over 8 million homeowners are in danger of foreclosure before it’s all said and done. They estimated that passing this bill could have saved almost 2 million of those homeowners from foreclosure. The Obama administration is going to have to regroup and find a new way to combat foreclosures, as an important arrow has just been removed from their quiver.

In the meantime, most of the large banks in the country are willingly modifying loans, reducing borrowers’ monthly payments for a period of time and receiving government subsidies for doing so. We won’t be able to judge whether or not the program is having a measurable impact in helping homeowners avoid homeowners until at least midway through the summer.

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