WASHINGTON — House Financial Services Chairman Barney Frank, D-Mass., threatened to revive legislation to allow bankruptcy judges to rewrite the terms of troubled mortgage loans.

Frank on Wednesday warned mortgage servicers that they would encourage support for the measure, which is fiercely opposed by the banking industry, if they don't do more to help strapped borrowers. The measure narrowly passed the House this year, and has been rejected in the Senate twice in the past two years.

"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," Frank said at a House hearing on the Obama administration's foreclosure-prevention effort.

Frank has told people he plans to attach the bankruptcy measure to financial regulatory overhaul legislation, a person familiar with the matter said.

Under the measure, bankruptcy judges would be allowed to reduce mortgage debts for strapped borrowers by slashing interest rates, extending the loan term or cutting the loan's principal balance, known as cramdown.

Treasury Assistant Secretary Michael Barr indicated that administration officials aren't involved in talks on Capitol Hill about reviving the bankruptcy measure.

"Bankruptcy reform is an additional tool, but it's not the focus of our efforts to keep people in their homes," Barr told reporters after testifying at the hearing.

Rep. Spencer Bachus of Alabama, the top Republican on the panel, blasted the idea of bringing back the legislation. "Bankruptcy cramdown would seriously prolong our housing recovery by decreasing mortgage credit," he said in opening remarks at the hearing.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.