Those efforts would reduce the monthly payment and restore some home equity, but as with earlier antiforeclosure efforts, lenders are not required to help. Despite government incentives to modify bad loans, lenders might wait to see if bigger incentives are offered later. They may also prefer foreclosure to modifications because the long foreclosure process lets them postpone taking losses.

Housing advocates have been pushing a series of proposals they say would tackle the problem — everything from mortgage bankruptcy reform to mandatory principal write-down programs. So far, though, all federal efforts to curtail foreclosures have hinged on the good will of the nation’s banks.

Yesterday, that threat paid dividends, as two of the nation’s largest banks — Bank of America and JP Morgan Chase — announced plans to revamp their debit card policies voluntarily to add some of the consumer protections being pushed by the lawmakers. From The New York Times:

Bank of America said it would allow current customers to turn off the ability to spend when their account hits zero, starting Oct. 19. Next June, the bank plans to limit the number of times each year that current customers can overdraw their accounts when using a debit card at a store. It will let new customers choose whether they want overdraft protection when they are opening their account.

Chase would eliminate another controversial practice by which the banks reorder a customer’s debit purchases according to amount, rather than chronology — a scheme that creates more overdraft fees, which currently average upwards of $30 a pop.

The moves are not insignificant. Overdraft fees, which have grown steadily in recent years, are estimated to bring in more than $38 billion to the banks in this year alone, according to Moebs Services, an Illinois-based financial research firm.

Still, you can bet that Democrats will want to mandate the consumer protections, rather than leaving them to the discretion of the banks to install.

The bill is sure to provoke an outcry from the banking industry, which claims the overdraft policy protects consumers by covering their purchases even when accounts have run dry. But many lawmakers and consumer groups maintain that the fees — averaging nearly $30 a pop — are excessive, particularly because consumers are rarely informed that they’re about to exceed their balance — or that a $30 penalty will accompany their latte purchase.

There’s a lot at stake here. Overdraft fees are estimated to bring the banks more than $38 billion this year alone, The Washington Post reported today, citing data from Moebs Services, an Illinois-based financial research firm.

Similar legislation to rein in overdrafts, introduced by Rep. Carolyn Maloney (D-N.Y), has been sitting idle in the House for months.

You’ll recall that Dodd recently passed on the chance to take over the chairmanship of the Senate Health, Education, Labor and Pensions Committee, saying there is  “important work” left for the Banking panel. He was talking about a slew of new finance industry reforms the Democrats hope to tackle this year, of which overdraft reform is just one piece.

Facing a difficult election next year, Dodd will need such victories to convince a skeptical public that the millions of dollars he’s accepted from the banks over the years haven’t left him using kid gloves when it comes to taking on the industry.

–

You can follow TWI on Twitter and Facebook.

Bank of America, for example, has modified loans for just 4 percent of borrowers (or 27,985 homeowners) who have missed at least two mortgage payments, the Treasury report reveals. Yet on July 16, BoA’s Default Management Executive Allen Jones told the Senate Banking Committee that the company was bending over backward to get people enrolled. “In the first six months of this year, modification offers have been accepted or rate relief has been provided for more than 150,000 customers,” Jones said in his written testimony.

Meanwhile, Mary Coffin, head of Wells Fargo’s mortgage servicing division, testified that the company has helped nearly 1 million customers this year with refinancings and modifications. Yet Treasury records show that the banking giant has modified just 6 percent (20,219) of its deliquent borrowers.

It’s a good lesson for the federal officials overseeing the MHA program. Yes, the banks are refinancing and modifying mortgage loans, but they’re not doing it for the families most in need of the help. It’s not quite what the program was designed to do.

This is what many of us feared about a law that didn’t take effect right away. It was never going to take this long for the credit card companies to get ready for the new reforms. Instead, issuers are using the delay in the effective date to wring more dollars out of their customers. It is against the spirit of the law and it is just plain wrong.

Omitted in the criticisms, however, is the inconvenient fact that it was the Democrats themselves who bowed to banking industry demands to delay their reforms for nearly a year after the bill was signed into law.

Indeed, the original Senate bill would have implemented the changes immediately, but the timeline was stretched to nine months by Democratic leaders, including Banking Committee Chairman Christopher Dodd (D-Conn.), during the markup of the bill.

A similar scene unfolded in the House, where the initial proposal, sponsored by Rep. Carolyn Maloney (D-N.Y.), called for the reforms to kick in 90 days after the bill’s passage. During a subcommittee markup of the bill, however, Rep. Luis Gutierrez (D-Ill.) extended the implementation timeline to 12 months.

The final bicameral compromise adopted the Senate’s nine-month window, meaning the changes — including that which Schumer has requested of the Fed — don’t take effect until February.

The irony here is that, as a chief justification for adopting credit card reforms as legislation, Democrats had cited the need to expedite similar reforms adopted by the Federal Reserve, but which won’t go into effect until July 2010. The Democrats’ legislation beats the Fed’s rules by a few months — but as supporters of that bill are finding out the hard way, that’s leaving plenty of time for the card companies to cash in on the legal leniencies currently in place.

The 15 banking CEOs who met with President Obama today in Washington head financial institutions that spent at least $45 million on lobbying in 2008, and gave $21.2 million in political contributions in 2007-2008, according to OpenSecrets.org, the Center for Responsive Politics’ Website that tracks money in politics.

Before the meeting, Obama said he would use the meeting “to reiterate his message that each of us must look beyond our own short-term interests to the wider set of obligations we have to each other in order for America to succeed.”

Following the meeting, John Stumpf of Wells Fargo said, “The basic message is we’re all in this together. We’re trying to do the right thing for America.”

Well, its never too late to start.

Here’s a list of the CEOs who met with Obama, followed by their respective institutions’ lobbying expenditures in 2008 and total campaign contributions from political action committees and employees in 2007-2008:

1) Jamie Dimon, JP Morgan Chase

Lobbying: $5.39 million

Contributions: $802,516

2) Ken Chenault, American Express

Lobbying: $5.78 million

Contributions: $573,167

4) Ronald Logue, State Street

Lobbying: $750,000 and $980,000

Contributions: $24,500

5)  Robert Kelly, Bank of New York-Mellon

Lobbying: $95,960 and $190,000 (BNY-Mellon and Mellon Bank)

Contributions: $628,775

6)  Rick Waddell, Northern Trust

Contributions: $74,030

7)  James Rohr, PNC

Lobbying: $395,000

Contributions: $161.861

8)  Lloyd Blankfein, Goldman

Lobbying: $3.28 million

Contributions: $5.84 million

9)  John Mack, Morgan Stanley

Lobbying: $3.120 million

Contributions: $3.63 million

10)  Vikram Pandit, Citi

Lobbying: $7.66 million

Contributions: $2.23 million

11) John Stumpf, Wells Fargo

Lobbying: $1.2 million

Contributions: $1.12 milion

12)  Cam Fine, Independent Community Bankers

Lobbying: $4.21 million

Contributions: $1.12 million

13) Edward Yingling, ABA

Lobbying: $9.06 million

Contributions:$3.81 million

14) Richard Davis, US Bank

Lobbying: $20,000

15)  Ken Lewis, Bank of America

Lobbying: $4.09 million

Contributions: $2.34 million

Not so fast.

Despite Citi’s cooperation, the rest of the banking industry isn’t joining hands to sing “Kumbaya” on this one, reports American Banker. (subscription required.) Other banks either want an even narrower version of the measure Citi supports – or nothing at all. From American Banker:

“Citi’s an important player, but we’ve got virtually a unanimous position from the rest of the industry that thinks this is the wrong way to go,” said Bill Himpler, executive vice president of federal affairs for the American Financial Services Association.

The reason something that sounds as boring as bankruptcy modification is important is simple: It actually works. It stops foreclosures. Even the threat that it might occur can stop foreclosures. And that’s a big contrast to everything else out there, all those loan modification programs and repayment plans. So far they aren’t getting the job done.

The lending industry has always hated the idea and has always gotten its way . But there’s a new regime in town, and this could wind up as part of the stimulus package.  Citi seems to be figuring out which way the wind blows before everyone else. Some in the banking industry even complained to American Banker about Citi breaking ranks to support bankruptcy modifications.

The other lenders may continue the fight, and they may make it longer and more difficult, but their winning streak may still be over, with or without Citi at their side.

Housing Wire reports that advocates are pushing the two mortgage giants to follow the lead of the Federal Deposit Insurance Corp., which is attempting an en mass modification of loans to borrowers from IndyMac. The FDIC this summer took over IndyMac, a subprime lender, in one of the nation’s largest bank failures.

The FDIC effort is being closely watched by the lending industry and by housing advocates. Our story this week explained that while the government is pushing private industry to do loan workouts through efforts like Hope Now, there hasn’t been much real progress made. FDIC Chairwoman Sheila Bair is an advocate of doing more mass restructurings.

According to Housing Wire, Bruce Marks, chief executive officer of the Neighborhood Assistance Corp. of America, which has been battling banks for years, is behind the pressure on Fannie and Freddie. From Housing Wire:

“Look what Sheila Bair’s doing — she’s walking the walk, as well as talking the talk,” Marks told Amercan Banker. “Now we need Secretary Paulson to walk the walk, as well as talk the talk.”

NACA, as we reported, also launched an effort this week in 40 cities to do loan restructurings on a large scale and to pressure servicers and lenders to follow through on them.

Not surprisingly, the lending industry isn’t exactly enthusiastic — since genuine loan restructurings mean lowering the principal and interest rate and taking losses. But with the government increasingly involved in the mortgage markets, it won’t be so easy for Treasury Sec. Henry Paulson Jr. and the Bush administration just to urge private industry to do more workouts as a solution to the mortgage crisis.

With the government in charge of so many mortgages, it either has to do what it’s been urging the private sector to do, or lose all its moral authority on this one.