NEW YORK (BankingMyWay) — Consumer advocates have long argued that banks and lenders are playing games with delinquent homeowners, especially in the ways that they evade homeowners’ questions and keep the foreclosure process rolling even when loan modification programs are simultaneously underway. A new bill in the Senate aims to put a stop this bad behavior, and it has a good chance of getting passed.

Dubbed the “Regulation of Mortgage Servicing Act,” the bill was introduced on May 12 by Senators Olympia J. Snowe (R-Maine) and Jeff Merkley (D-Ore.). In a letter introducing the bill, Snowe’s office says more than 1 million homes have been foreclosed upon in the U.S. in the past year, while another 8 to 10 million homes are in the foreclosure pipeline. Housing monitor RealtyTrac confirms that foreclosures are casting a large shadow over any housing industry rebound, with 219,258 new foreclosures in April 2011 (though that number is down 8% from March, RealtyTrac reports).

With the new legislation, Snowe and Merkley argue that banks have been slow in helping delinquent homeowners, particularly with loan modification deals that could keep them in their homes. In addition, they argue, banks and mortgage lenders, when they do open up the negotiating table to loan modifications, keep the foreclosure process going at the same time.

This behavior would end if the bill passes Congress, argues Snowe’s office, by creating a single point of contact for borrowers at the mortgage servicer, ending the “dual track” practice of lenders negotiating a loan modification and going forward with a foreclosure at the same time, and by creating an independent, third-party review before proceeding with a foreclosure.

“I am deeply troubled a myriad of foreclosures nationwide have occurred as a result of confusing communications with loan servicers and misfiled or flawed paperwork,” said Snowe in a statement. “What is deeply troubling is a number of homeowners throughout Maine, and across the nation, have gone into foreclosure in spite of their best efforts to obtain loan modifications for which they could be eligible.”

Citing a “confidence” issue, Snowe adds that homeowners have a right to transparency in both foreclosure and home loan modification when dealing with lenders, but they’re not getting much of that right now.

“It is critical that we restore confidence in the relationship between homeowners and the loan servicing industry and remove confusing barriers to loan modifications,” she adds.

For his part, Merkley cites examples of conflicting advice and direction from lenders to customers, so much so that the mortgage process itself may be irreparably harmed.

“Every day, Oregonians call my office with horror stories of applying for mortgage modifications,” he says. “Families are rejected for modification because their payments aren’t current after being told to stop making their payments so they will qualify. Families have to tell their stories again and again to different people at the servicing company. [And] families get foreclosed upon while they are still negotiating a loan modification … This legislation will put these bad practices to an end.”

Mortgage lenders won’t like the bill and consumers can expect the industry to lobby heavily against it. But the bill is a rare bipartisan effort that has drawn support from both sides of the aisle. If it does pass (the full Senate is expected to act this summer) struggling homeowners will have added leverage and much-needed transparency in both the loan modification and foreclosure processes.

Even as banks balk at such legislation, consumer advocates say the Snowe-Merkley bill is a step in the right direction.

—For more ways to save, spend, invest and borrow, visit MainStreet.com.