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Mortgage fix - The clock is ticking

Senate leaders reached a deal on Tuesday that could expedite help for the troubled housing market. But hurdles remain and time is running out.

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By Jeanne Sahadi, CNNMoney.com senior writer

NEW YORK (CNNMoney.com) -- The Senate, in a surprise move, has agreed to work out a bipartisan housing package that could come to the floor as soon as Wednesday.

Such deals - quickly brokered between Democratic and Republican leaders - will have to be the order of the day in both the Senate and the House if lawmakers hope to stem foreclosures this year.

Indeed, Congress is facing a deadline: Housing experts say that bills must get signed into law by July and take effect no later than the third quarter to prevent a substantial number of foreclosures this year.

Nationwide, 1.5 million subprime adjustable-rate mortgages will reset to higher interest rates this year - with May and June being peak months, said Rick Sharga, a spokesman for Realty Trac, an online marketer of foreclosure properties.

Many of those borrowers are vulnerable to foreclosure either because their monthly payments will become unaffordable when the rate changes, or they already are having trouble making their payments.

Foreclosure filings typically are issued after a borrower has been in default for 90 days. Those borrowers then usually lose their home within three to four months if they can't work out a deal with the lender or find a way to pay what they owe. Translation: Those whose loans reset in May and June could be in the foreclosure process by September and lose their home by the end of the year or early in 2009, Sharga said.

Election-year pressure

Congress also faces intense political pressure to reach a compromise soon.

"If lawmakers cannot do this by the July 4th recess, then it will be tough to ever get it finished," said Jaret Seiberg, senior vice president at the Stanford Group, a Washington policy research firm. "Attention in July will move squarely to the presidential election and it will become increasingly hard to reach any type of bipartisan accord," he said.

The bipartisan Senate housing package, which hasn't been written yet, could be presented as early as Wednesday afternoon. It could be made as an amendment to a Democratic housing bill that was blocked by Republicans in a vote a month ago.

The most controversial part of that bill - a provision that would let bankruptcy judges write down the principal and interest on residential mortgages for Chapter 13 filers - is likely either to be much modified or eliminated altogether from the bipartisan package.

Republicans strongly objected to the bankruptcy measure, contending it would increase the costs of mortgages for everyone since lenders would price in more risk if they knew a third party could alter the loans' terms. Some studies have shown, however, that cost increases would be minimal.

The Democrats' bill also included a provision that would give $4 billion in grants and loans to states and local governments to buy and refurbish foreclosed homes. The White House has said it considers such a provision a bailout for lenders.

The Senate's agreement to compromise on Tuesday doesn't mean lawmakers will successfully broker a bipartisan package quickly.

"It's not clear to me that they've reached a deal - it seems they've reached a procedural deal," said Brian Gardner, a political analyst with Keefe, Bruyette and Woods.

And even if they do, lawmakers on the other side of the Capitol will still have to weigh in.

On the House's docket are Financial Services Committee hearings next week to consider a proposal from that committee's chairman, Barney Frank, D-Mass., to let the Federal Housing Administration insure mortgages for troubled borrowers if lenders voluntarily write them down to an affordable level for the borrower.

Senate Banking Committee Chairman Christopher Dodd, D-Conn., also supports the idea and may introduce his own bill.

Whether Congress will be able to stimulate the housing market and help borrowers avoid foreclosure can only be known once a final deal is struck. In the meantime, the clock is ticking. To top of page

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