Yesterday the Senate voted 51 to 45 against a law that would have given bankruptcy judges the ability to rewrite mortgages the same way judges can modify other types of debt, such as personal loans, medical bills and credit card debt.

Currently, bankruptcy judges do not have the ability to modify mortgage terms by reducing the principal, lowering interest rates or extending the term. The law, which had passed in the House of Representatives, would have given judges much greater latitude when dealing with defaults on home loans.

Consumer advocacy groups felt that the mere threat of bankruptcy would have given distressed homeowners greater leverage in negotiations with their lenders.

The defeat of the bill is a serious embarrassment for Obama as well as the democrats in the House who had pushed for the law. Many democrats on the hill were livid to see the same financial institutions that had received bailout funds lobbying to defeat the bill in congress.

WHAT THIS MEANS FOR YOU

Nothing, since you didn’t lose something you already had. However, you lost a great opportunity for picking up a significant weapon to use against your lender.

The defeat of the bill by deeply entrenched financial institutions signals that lenders will not simply roll over and be told what to do despite the fact that these same institutions nearly drove the world into a depression and accepted billions in taxpayer funds.

Emboldened by their success, the financial industry will make future reforms to the mortgage industry more difficult to enact.

Home Loan rates decreased this last week from last week:

*Loan fees are referred to as points. This chart represents the average national points charged according to Freddie Mac. For example, if you are paying .7 points on a $100,000 loan your fees will be $700.