A legislative effort to address the nation's home foreclosure crisis moved forward in the Senate Tuesday as Democratic and GOP leaders defused a potential filibuster.
Majority Leader Harry Reid, D-Nev., and GOP Leader Mitch McConnell of Kentucky agreed to bring a bipartisan bill to the floor as early as Wednesday instead of a Democratic plan that stalled a month ago.
Instead, Senate Banking Committee Chairman Christopher Dodd, D-Conn., and the panel's top Republican, Richard Shelby of Alabama, were instructed to forge a compromise by Wednesday afternoon.
Senators in both parties gave the arrangement a 94-1 stamp of approval on a previously scheduled procedural vote. Jim Bunning, R-Ky., was the sole "nay" vote.
The move, senators and aides said, likely means dropping a Democratic plan — strongly opposed by Republicans and President Bush — to give bankruptcy judges power to cut interest rates and principal on troubled mortgages. Chief sponsor Richard Durbin, D-Ill., is pressing a modified version aimed at easing opposition from banks and Republicans and hoped it might still be included in the measure; at the least, he'll seek to add it on the floor.
The hotly-contested provision rewriting the bankruptcy code, opponents say, would allow borrowers to effectively rewrite their mortgage contracts and would prompt lenders to tighten their standards and raise interest rates.
The legislation is likely to draw on elements of the Democratic plan such as letting states issue $10 billion in tax-exempt bonds to refinance subprime loans and permitting homebuilders and other money-losing businesses to reclaim previously paid taxes.
Democrats also want to provide $4 billion to states to buy up and refurbish foreclosed homes, a plan that the administration opposes as a bailout for lenders and speculators.
The upcoming bill also is sure to attract a GOP amendment by Sen. Johnny Isackson of Georgia to award $15,000 tax credits to people who buy and move into foreclosed homes. That would sharply boost demand, Isackson says. Lawmakers in both parties support the idea
The measure is also likely to include a plan by Dodd to have the Federal Housing Administration guarantee hundreds of billions of dollars worth of refinanced loans if lenders reduce loan amounts to reflect reduced home values. The measure would force banks to make less money on the loans but would also reduce their credit exposure.
Tuesday's developments don't guarantee a successful result, but both parties are under great pressure to produce a bill that can pass this year. There's enough common ground for a bill, even though difficult negotiations remain on several fronts.
"Inaction is never an option when you have a crisis of confidence in the housing market and the financial market," Shelby said. "The American people are looking to the Senate right now to see how we're going to react to it."
There is also bipartisan backing for new money for debt counselors to help homeowners negotiate with lenders.
The developments come on the heels of steps by the Federal Reserve to broker the 11th-hour sale of a major investment firm, the failing Bear Stearns Cos., to a rival. It guaranteed some $30 billion in Bear assets, including questionable mortgage-backed investments. The central bank also allowed investment houses to get emergency loans previously reserved only for commercial banks.
Dodd said that about 8,000 homes are being foreclosed on every day.
"Foreclosures of this magnitude are on a par with the severity of foreclosures during the great Depression," Dodd said. "Each day without action means more are losing their homes."