U.S. Senators Agree on Foreclosure-Prevention Bill (Update3)

By Alison Vekshin

April 2 (Bloomberg) -- U.S. Senate leaders agreed on legislation aimed at curbing home foreclosures, dropping a provision that would have allowed judges to alter mortgages for borrowers in bankruptcy proceedings.

Senior Senate Democrats and Republicans hammered out a plan that includes mortgage counseling, tax credits for people who buy foreclosed homes and changes for the Federal Housing Administration, Senate Majority Leader Harry Reid and Minority Leader Mitch McConnell said today in an e-mailed statement.

Senate Republicans and the Bush administration said the bankruptcy changes would have forced lenders to recoup court losses by raising interest rates on other borrowers.

``This is a solid, bipartisan start to keeping families facing foreclosure in their homes, helping other families avoid foreclosures in the future and helping communities already harmed by foreclosure to recover,'' Reid, a Nevada Democrat, and McConnell, a Kentucky Republican, said in the statement.

Congress is seeking legislative fixes to stem foreclosures and bolster the economy amid increased concern the U.S. is in a recession. Foreclosures jumped 60 percent in February after reaching a record rate in the fourth quarter of 2007.

Senator Richard Durbin, a lead supporter of the bankruptcy court idea, said he will offer the bankruptcy provision as an amendment to the broader bill ``as soon as this bill is brought to the floor.''

'Working Overtime'

``The mortgage bankers have been working overtime to try to kill'' the provision, Durbin, an Illinois Democrat, said in an interview with Bloomberg Television.

The legislation will include more money for foreclosure counselors, funds for communities to buy foreclosed homes and more transparency in real-estate closings to help borrowers better understand the terms, Durbin said.

The Senate yesterday voted to move forward on the measure after Democrats and Republicans agreed to write the compromise plan. Senate Banking Committee Chairman Christopher Dodd, a Connecticut Democrat, and Richard Shelby of Alabama, the panel's top Republican, were assigned to write the substitute proposal.

Reid said yesterday the legislation will still be subject to amendment on the Senate floor, and the chamber will probably vote on the bankruptcy provision.

This week's vote was the second time the Senate took up the bankruptcy measure this year. In February, Democrats failed to get the 60 votes needed to trigger debate on the measure after the White House threatened a veto. Democrats control the Senate with 51 votes.

Tax Credit

House Speaker Nancy Pelosi, a California Democrat, didn't have any immediate comment on the Senate compromise, spokesman Drew Hammill said.

Senate Finance Committee Chairman Max Baucus, a Montana Democrat, and Charles Grassley, the panel's top Republican, proposed a series of tax provisions aimed at helping homeowners to be included in the Senate compromise package.

Their plan would create a standard property tax deduction for homeowners who don't itemize their federal taxes, offer a $7,000 tax credit for people who buy foreclosed homes and offer $10 billion in federal tax-exempt, private-activity bonds for refinancing subprime loans.

To contact the reporter on this story: Alison Vekshin in Washington at avekshin@bloomberg.net.

Last Updated: April 2, 2008 18:28 EDT

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