Elusive housing bill inches forward

Special Report

Seniors face grim choices amid market shock October pending home sales slip 1% Tenants victimized by foreclosures Taxpayers: Furious over homeowner bailouts

NEW YORK (CNNMoney.com) -- Key lawmakers spent Thursday trying to broker a deal on a bill that would allow the government to insure up to $300 billion of home loans and overhaul oversight of key players in the mortgage industry.

By the end of the day, they had come closer together but had not hammered out a final compromise.

"We believe we have an agreement in concept," said a spokesman for Sen. Richard Shelby, R-Ala., the lead Republican on the Senate Banking Committee. "We're currently in the process of seeing whether we can translate that agreement in concept into language."

Shelby has been the main critic of the bill, sponsored by committee Chairman Christopher Dodd, D-Conn.

Late Thursday night, Dodd said he was "optimistic" a deal could be reached when the committee reconvenes next week.

"Senator Shelby and I are very close to reaching an agreement on this important piece of legislation, and are working with each other and other members of the committee to resolve the few differences that remain," Dodd said in a statement.

At issue is a bill that would allow at-risk borrowers with hybrid adjustable rate mortgages to refinance into fixed-rate mortgages. The new loans would be insured by the Federal Housing Administration (FHA) and be available to homeowners if their lenders agree to write down loan balances below the appraised value of their homes.

The proposal hit resistance from Republicans, led by Shelby, who objected to risking taxpayer money to bail out lenders and borrowers who had acted imprudently.

A primary bone of contention for Shelby has been whether the FHA component of the bill would be paid for in full. He reportedly wants Freddie Mac (FRE, Fortune 500) and Fannie Mae (FNM, Fortune 500) to provide funds to backstop the FHA program, rather than the FHA itself, to lower the risks to taxpayer. Fannie and Freddie are government-sponsored enterprises created to guarantee the purchase and sale of home mortgages in the secondary market.

Even if the two committee leaders reach agreement, it remains an open question whether President Bush would support the bill. He has threatened to veto a similar bill sponsored by Rep. Barney Frank, D-Mass., and passed by the House last week. But Shelby in interviews with media outlets on Thursday said he was working with the White House to come up with a workable plan.

Pressure has been building in Washington to respond to the huge increases in foreclosure filings. Republican lawmakers from states with high foreclosure rates who are up for re-election this year might feel inclined to get behind the rescue effort.

The Stanford Group, a Washington policy research firm, counts 23 Republican senators who come from states with at least one county seriously hurt by subprime problems. Of those, two are from Ohio and Florida, swing states in the election; and the terms of 8 senators in the group will expire this year.

"Even if a senator is not seeking re-election - as several Republicans are not - he is likely to face added pressure to support a housing bill to deprive the Democratic opponent from using the vote against the GOP nominee," wrote Jaret Seiberg, a Stanford analyst, in a research note.

There's less pressure on the 10 Senate Banking Committee Republicans. Only three of them come from states with at least one county seriously hurt by subprime problems.

Dodd can get his bill passed with or without them - he only needs a party-line vote to get something out of committee. But if he only gets Democrats to vote for it, the bill will be in serious trouble on the Senate floor. That's because for Democrats to defeat any threat of a filibuster, they will need 60 votes, which means they'll need at least 9 Republicans to get on board with the Dodd bill.