WASHINGTON — Senate Majority Whip Richard Durbin said Monday that, if voluntary loan modifications do not increase significantly within three months, he will revive a legislative effort to let judges rework loans in bankruptcy.

Though the banking industry helped defeat such legislation in April, Durbin said he sensed growing support for it as lawmakers grow dissatisfied with the slow pace of modifications.

"I'm afraid it's going to take a lot more misery to move a lot more votes, but unfortunately it seems to be coming our way," he said.

In addition to a bankruptcy bill, he said, Congress should pass legislation to let borrowers who cannot afford their mortgages the right to stay in their homes by paying a fair market rent to their banks. He also suggested penalizing servicers that refuse to comply with the Obama administration's loan-modification standards and providing funds to cities and states that create mandatory arbitration programs.

"Perhaps we should help to provide funding for areas that require servicers to sit down face-to-face with borrowers before a foreclosure sale can be commenced," he said.

The Illinois Democrat said he has talked about his plans with Treasury Secretary Timothy Geithner but did not make it clear whether the administration would support him. The administration ostensibly supported the mortgage bankruptcy reform bill in April but was criticized for not lobbying for it.

Though the political prospects for mortgage bankruptcy reform remain murky, Durbin was the second lawmaker in less than a week to warn that patience on modifications is close to exhausted. House Financial Services Committee Chairman Barney Frank said last week that, though he welcomed changes to improve the Obama administration's foreclosure prevention plan, time was running out for voluntary efforts.

"People in the servicing industry and in the broader financial industry must understand that, if this last effort to produce significant modifications fails, the argument for reviving the bankruptcy option will be extremely strong, and I think there is a substantial chance that the outcome will be different," Frank said.

Speaking to the Center for American Progress, Durbin noted that servicers had pledged last week to offer at least 500,000 loan modifications by November under the Obama administration's Making Home Affordable Program. (So far, banks have extended roughly 370,000 modifications.)

But Durbin said this was not enough to satisfy him.

"I want to put the banks and mortgage servicers on notice today," he said. "If they have not made real progress in reducing the number of avoidable foreclosures by that time, I will work aggressively with other members of Congress to pursue other legislative action to get homeowners real leverage to stay in their homes on reasonable terms."

Durbin also sent letters Monday to the top 34 banks asking what each is doing to address mounting foreclosures.

The administration's loan-modification effort is the third voluntary program to date. The Bush administration first attempted modifications through Hope Now, an industry coalition of servicers and lenders, with disappointing results. Congress then enacted the Hope for Homeowners program, which began operation last year but so far has helped just one borrower to refinance.

"The voluntary efforts by some banks to slow the foreclosure crisis and stabilize America's housing market have not worked," Durbin said.

But it was unclear when Congress could address the matter again.

The House began its August recess last week, and the Senate is scheduled to adjourn Friday. The administration also appears to be focusing its attention on health-care reform and financial regulatory reform, not the foreclosure crisis.

Though Geithner and White House economic adviser Lawrence Summers took to the Sunday talk shows to try to calm fears about the economy, Durbin warned against getting too confident of a recovery.

"Despite aggressive efforts by this administration to try to stabilize the housing market, our economy remains threatened by this dangerous downward spiral," the senator said. "Sadly, I believe it's about to get worse … . Unfortunately it's just plain wrong to conclude the crisis is over."

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