In yet another contentious Congressional hearing on the federal government’s foreclosure-prevention programs, House Financial Services Committee Chairman Barney Frank on Wednesday reissued his threat to introduce mortgage cramdown legislation if the lending industry didn’t do a better job of policing itself. Since the dawn of the current housing and credit crises last year, Frank (D. – Massachusetts) and a number of his colleagues in Congress have argued that cramdowns would be one of the most effective ways to assist troubled homeowners and break the growing cycle of foreclosures in the U.S. As DS News reported earlier in the summer, a cramdown bill passed by the House was voted down in the Senate earlier this year — the second time in two years that the Senate rejected such a measure. Cramdown laws would empower judges to radically modify the terms of mortgages held by ailing borrowers who file for bankruptcy protection in the courts. Such modifications could include slashing interest rates, extending the term of the loan, and cutting the principal balance — a potential dagger in the heart for servicers, lenders and mortgage investors. At Wednesday’s hearing, Frank chastised the residential lending industry, alleging they were dragging their feet in assisting troubled homeowners avoid default. “The best lobbyists we have for getting bankruptcy legislation passed are the servicers who are not doing a very good job of getting mortgages modified,” he said. Sources told the Wall Street Journal Wednesday that Frank intends to eventually slip a cramdown provision into legislation that would overhaul the limping financial system.

That might happen in early 2010, when the Obama administration is expected to publish its own recommendations for financial reform. As they have done for several months, House Republicans shrugged off Frank’s proposal on Wednesday. “Bankruptcy cramdown would seriously prolong our housing recovery by decreasing mortgage credit,” Rep. Spencer Bacchus (R. – Alabama), the Financial Services Committee’s senior Republican, said in his opening remarks at the hearing.