updated 5/20/2008 4:28:34 PM ET 2008-05-20T20:28:34

Democrats and Republicans banded together Tuesday to push a homeowner rescue plan through a key Senate committee, boosting the chances for a broad election-year housing aid package.

The vote was 19-2 in the Senate Banking Committee to approve the plan, which would give cheaper, government-backed mortgages to up to 500,000 strapped borrowers. Eight Republicans joined the panel’s Democrats to back the measure, after extracting a major concession to pay for the foreclosure-prevention plan by diverting money intended to pay for housing for the poor.

The bill also tightens regulation of government-sponsored mortgage giants Fannie Mae and Freddie Mac, which would finance a new affordable housing fund that would temporarily be used to pay for the homeowner rescue.

“If I were writing this on my own, it would look different, but it is a balance,” said Sen. Christopher J. Dodd, the Banking chairman, who predicted the measure could clear Congress by July 4.

“I believe the White House will support this,” said Sen. Richard C. Shelby, the panel’s senior Republican. “I don’t know why they wouldn’t.”

The White House has threatened that President Bush would veto a similar House-passed measure, calling it a burdensome bailout that exposes taxpayers to undue risk. The bill would let the Federal Housing Administration back up to $300 billion in new loans for struggling homeowners who would otherwise be considered too financially risky to refinance into a fixed-rate, government-insured mortgage.

But the administration was noncommittal about the Senate bill on Tuesday, saying policy aides were analyzing the financing mechanism to see whether it addressed Bush’s objections.

“That’s what we’re checking, because we don’t believe that taxpayer dollars should be used to help lenders or speculators. We think that we should be able to help Americans who want to stay in their homes and can afford to stay in their homes find a way to do that without using taxpayer dollars,” said Dana Perino, the White House press secretary.

The idea of an FHA-based foreclosure prevention bill has drawn staunch opposition from most Republicans, many of whom say they are concerned that taxpayers would be on the hook for huge losses if homeowners defaulted on their new loans.

Many Democrats are displeased about the idea of using a fund designed to help the lowest-income people avoid homelessness to instead help middle-class people stay in their homes.

Rep. Barney Frank, D-Mass., the Financial Services chairman, has said he is against the idea, and it is certain to be a hotly debated part of House-Senate negotiations on the measure. The projected $2.7 billion cost of his housing package would be covered by the government.

But Democratic senators argued that establishing the fund was worth the trade-off.

“We salvaged an affordable housing program in perpetuity,” Dodd said.

A key Senate panel has approved a homeowner rescue plan to give cheaper, government-backed mortgages to up to 500,000 strapped borrowers.

Eight Republicans joined Democrats on the Senate Banking Committee to advance the housing rescue package. It also includes tougher regulations for government-sponsored mortgage giants Fannie Mae and Freddie Mac.

The bill would let the Federal Housing Administration back up to $300 billion in new loans for struggling homeowners who would otherwise be considered too financially risky to access a fixed-rate, government-insured mortgage.

Under a key concession to Republicans, the FHA rescue would be financed by Fannie and Freddie profits, by temporarily diverting a fund to provide housing for the poor.

© 2013 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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