WASHINGTON -- Senate Democrats and Republicans agreed to negotiate on a housing bill, easing a gridlocked partisan fight and potentially allowing for an injection of federal dollars into the distressed housing market.
The 94-to-1 procedural vote showed the potency of the economy as an election-year issue. Lawmakers returned from a two-week break eager to show they are responsive to a top concern of voters. Republicans who last month blocked debate on the same Democratic bill switched course amid the pressure. They said they did so because Democrats agreed to negotiate with them over changes.
The final shape of any compromise is uncertain but could come together quickly, indicating the political momentum behind such government intervention. Sens. Chris Dodd (D., Conn.) and Richard Shelby (R., Ala.), the chairman and ranking member of the Senate Banking Committee, are leading the talks. They hope to reach a deal by Wednesday, with the goal of Senate action this week.
Mr. Dodd may try to add a proposal that would give the Federal Housing Administration a bigger role in stabilizing the mortgage market. His idea would have the federal government insure as much as $400 billion in new loans for homeowners. But Democrats and Republicans haven't neared a compromise on the idea, and the speed of negotiations means its inclusion in the current bill appears unlikely.
A White House spokesman said President Bush is waiting to see what compromise emerges from the Senate talks before staking out a position. The Bush administration has been dismissive of most of the more aggressive proposals floating around Washington but in recent weeks has softened its language, suggesting some compromise may be possible.
Several provisions from the Democratic bill have a good shot at ending up in a final package: a $10 billion increase in the amount of mortgage-revenue bonds states can issue for refinancing, a $200 million boost for housing counseling and a tax credit that would let struggling companies such as home builders apply operating losses to past tax years.
Democrats also appear open to some Republican proposals, such as a temporary tax credit proposed by Sen. Johnny Isakson (R., Ga.) to encourage people to buy homes at or near foreclosure. Sen. Isakson backs a three-year, $15,000 tax credit that also could be used for newly built vacant homes; Democrats are discussing a scaled-back version.
Senate tax writers may try to add other tax changes, including a property-tax deduction for people who don't itemize their taxes and an exemption from the corporate alternative minimum tax for corporations that purchase low-income housing credits.
One likely casualty is a proposal from Senate Democrats to let bankruptcy judges alter the terms of certain mortgages. Republicans, the White House and the banking industry oppose the idea, saying it would raise the cost and reduce the availability of mortgages. Many Democrats say the change would help thousands of people to keep their homes. But they seem unwilling to let it hold up other housing provisions.
Sen. Richard Durbin (D., Ill.), the lead supporter of the bankruptcy provision and the Senate Democratic whip, said he had been assured there would be a vote on the provision during Senate debate. But he said he didn't know whether it has sufficient support.
As many as 3.3 million homeowners are expected to default on their first mortgages this year and next, with more than two million of them ultimately projected to lose their houses, according to Moody's Economy.com.
The foreclosure crisis has rippled through wider markets and is socking big financial institutions with more than $100 billion in losses on mortgage-backed securities and other troubled assets. The setbacks have led the institutions to cut back on lending, which threatens to push the broader economy into recession.
House Republican leaders met with U.S. Federal Reserve Chairman Ben Bernanke, who is set to testify to Congress Wednesday and Thursday. He discussed the long-term economic outlook, the housing market and the Bear Stearns deal, according to people familiar with the meeting. They said that Mr. Bernanke didn't plan to endorse any particular housing proposal in his testimony but that he said he agreed with Republicans that a tax increase wouldn't help the economy.
--Michael M. Phillips and Damian Paletta contributed to this article.
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