The group had hoped for a House of Commons vote in favour of an amendment to the Financial Services Bill which would have capped the standard variable rate (SVR) on their mortgages.
The BBC reported on Monday that government was whipping Conservative MPs to vote down the amendment, which they did.
The borrowers became trapped on mortgages when government bailed out lenders following the financial crisis and then sold the loan books to venture capital funds.
Government has argued the latest proposed measure to help them would represent a destabilising intervention into the mortgage market.
The Mortgage Prisoners Action Group (MPAG) said its members have been made to “pay for the iniquity of regulated banks in 2008,” and further, had their characters attacked by politicians.
MPAG said: “We feel utterly disappointed, distressed and betrayed that the government has failed to include amendment 8 to the Financial Services Bill.”
“The measure would have provided immediate relief and significantly changed the lives of mortgage prisoners who have faced over a decade of financial and emotional misery.”
The group singled out economic secretary to the Treasury, John Glen, for the “continued and tactical demonisation of mortgage prisoners”.
The proposed amendment was voted for by the House of Lords earlier this month.