U.S. Senators Agree on Foreclosure-Prevention Bill (Update4)

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.

The plan includes funds for foreclosure-prevention counseling, tax credits for people who buy foreclosed homes and clearer loan disclosures for consumers buying a home, according to an outline of the proposal released today by Senate Banking Committee Chairman Christopher Dodd and the panel's top Republican, Richard Shelby.

``We're trying to provide some real assistance for people out there who are struggling to hold on to their homes, as well as to deal with properties that could end up being foreclosed,'' Dodd, a Connecticut Democrat, said today at a news conference in Washington.

Dodd said the senators couldn't agree on how to handle the bankruptcy provision. Senate Republicans have blocked previous efforts to advance the idea, saying the bankruptcy changes would have forced lenders to recoup court losses by raising interest rates on other borrowers.

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

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

Tax Credit

Dodd and Shelby's plan would offer a $7,000 tax credit for people who buy homes in foreclosure to be claimed over two years, $10 billion in federal tax-exempt, private-activity bonds for refinancing subprime loans, and $100 million for housing counseling to help homeowners avoid foreclosure.

It would also reform the Federal Housing Administration, a Washington-based agency that insures mortgages for low-income borrowers, and offer $4 billion in grants to communities to buy and rehabilitate foreclosed homes.

Shelby, of Alabama, said the senators will bring the measure to the Senate floor tomorrow.

``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,'' Senate Majority Leader Harry Reid, a Nevada Democrat, and Senate Minority Leader Mitch McConnell, a Kentucky Republican, said today in a 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.

Second Time

The Senate yesterday voted to move forward on the measure after Democrats and Republicans agreed to write the compromise plan. Dodd and Shelby were assigned to write the substitute proposal.

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.

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.

``On principle, the package is a good first step to help many Americans avoid foreclosure,'' said Drew Hammill, a spokesman for House Speaker Nancy Pelosi, a California Democrat. ``But we will need to review the details and fine-tune any specific provisions that need to be stronger.''

White House spokesman Tony Fratto said the administration has ``serious concerns'' about the tax-credit provision and the funding for communities to buy foreclosed homes.

``We're pleased that there is finally movement on the president's initiatives -- FHA modernization and mortgage- revenue bonds,'' Fratto said. ``We'll want to see details of these elements of the package before we could support them.''

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

Last Updated: April 2, 2008 19:44 EDT

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