The Democratic bill being voted on Tuesday blends several provisions aimed at easing the foreclosure crisis, such as providing $4 billion to communities to purchase and rehabilitate foreclosed homes and improving disclosure of subprime mortgage loans so borrowers won't be surprised by big payment increases.
The underlying measure faces uncertain prospects as rival Democrats and Republicans spar over how freewheeling a debate to have on it. It seemed likely that Republicans would again block the bill, as they did Feb. 28.
The White House, Republicans and some Democrats are opposed to a plan to change bankruptcy laws to allow judges to cut interest rates and reduce what's owed on troubled borrowers' mortgages, saying it would force lenders to tighten their standards and raise interest rates.
"There is no way this proposal is going to fly," said Senate Minority Leader Mitch McConnell, R-Ky. "If Democrats want to help homeowners, they need to work with Republicans on proposals that will draw substantial bipartisan support."
Democrats say they're open to some GOP options, such as a bill 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.
The measure could also serve as a vehicle for a plan by Sen. Christopher Dodd, D-Conn., the Banking Committee chairman, 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.
The White House says the $4 billion for purchases of foreclosed homes is too expensive and "would constitute a bailout for lenders and speculators, while doing little to help struggling homeowners."
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The provision rewriting the bankruptcy code, the White House says, would allow borrowers to effectively rewrite their mortgage contracts.
The measure also contains money for debt counselors to help homeowners negotiate with lenders.
The moves 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.
Democrats seem likely to use Tuesday's procedural vote to attack Republicans for failing to back their housing initiatives while supporting a government rescue for investment giants but not for struggling homeowners.
"The federal government has provided assistance to Wall Street, now Congress must turn its attention to Main Street," said Senate Majority Leader Harry Reid, D-Nev.
The developments on Capitol hill come a day after Treasury Secretary Henry Paulson unveiled a plan to overhaul the way the government regulates financial markets. Dodd told reporters the moves are legitimate ideas but aren't as urgent as dealing with the foreclosure crisis.
"Frankly it doesn't relate ... to the issues we're grappling with here and the problems we've got to confront," Dodd said.
Press; By ANDREW TAYLOR]
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