Key senators announced Monday a bipartisan agreement on the broad elements of a plan to avoid foreclosures and speed the refinancing of mortgages for roughly 500,000 troubled homeowners without taxpayers footing the bill.
The deal, full details of which were not spelled out, reflects the election-year pressure that lawmakers feel to find common ground on one of the most pressing issues facing the country. The housing collapse has inflicted pain on thousands of families, dealt the economy a major blow and ignited a fierce controversy over what -- if anything -- the government should do about it.
Despite the agreement, the measure still faces substantial hurdles: passage by the full Senate; approval by the House, which has its own home rescue plan; and signature by President Bush, who has threatened to veto the House's version.
The lead Republican on the Senate Banking Committee, Sen. Richard C. Shelby (R-Ala.), expressed optimism that a new financing arrangement agreed to Monday would attract more support from his Republican colleagues, who have voiced concern about any measure that could be seen as a government bailout of speculators.
"My primary consideration during negotiations on this package has been to protect the American taxpayer, and I believe we've made significant progress toward that goal," Shelby said in a statement.
Some Republicans have supported other versions of the legislation, citing the severity of the housing crisis and the escalating number of foreclosures in some regions of the country, including parts of California. They argued that the foreclosure crisis would damage entire communities and pull the economy toward recession.
But other Republicans argued against any government assistance, saying it would reward borrowers and lenders who made bad decisions out of carelessness or greed.
Shelby was considered a key player because he belonged to the latter group. "I've long said that we should do what we can to help struggling homeowners, short of asking the taxpayer to foot the bill," he said Monday.
White House reaction to the emerging deal was muted. In public comments, Bush did not repeat his previous veto threat, saying only that "we look forward to working with Congress to get a good piece of legislation to my desk that helps our fellow citizens and helps us get through this housing issue."
The Senate plan announced by Shelby and Banking Committee Chairman Sen. Christopher J. Dodd (D-Conn.) is similar to the House-passed bill in that the centerpiece of each is an expansion of government mortgage insurance. Under both proposals, a borrower facing foreclosure could refinance into a government-guaranteed mortgage under certain conditions, including that the home is the owner's primary residence and that the holder of the existing mortgage accepts 85% of the home's current appraised value as payment in full.
The House bill calls for using about $1.7 billion from the federal budget to set up the program, which would be administered by the Federal Housing Administration.
Under the Senate deal, the start-up funds would come instead from an affordable-housing fund capitalized by mortgage giants Fannie Mae and Freddie Mac, which were created by the government but are owned by public stockholders.
"This legislation is good news for both the markets and homeowners," Dodd said. "The bill addresses the root of our current economic problems -- the foreclosure crisis -- by creating a voluntary initiative at no estimated cost to taxpayers, which will help Americans keep their homes."
Dodd told reporters the measure would speed the correction of housing prices to return stability to the market as soon as possible and prevent further damage to the broader economy.
"Obviously, we want to keep as many people as possible in their homes. But the second goal, as important as the first, is to get to the floor" of the housing correction, Dodd said in a conference call. "Until we get to the floor, none of this is going to get better."
White House spokesman Tony Fratto said the administration would look carefully at the plan once it was formally approved by the Senate Banking Committee, which it could do as soon as today.
"We want to ensure that FHA expansion is done in a responsible and effective way," Fratto said.
The legislation also would create a new oversight structure, long sought by the administration, designed to ensure that Fannie Mae, Freddie Mac and the Federal Home Loan Bank system remain financially sound.
Other aspects of the House version of the legislation, including tax credits for first-time home buyers and federal support for mortgage counseling, were to be taken up by the Banking committee today.
"We have a lot of confidence that this is what the market is waiting for," Dodd said.