CORRECTED-US Sen. Shelby: Not clear can reach housing deal

(Corrects sixth paragraph to show Dodd from Connecticut, not Massachusetts)

WASHINGTON, May 12 (Reuters) - The top Republican on the U.S. Senate Banking Committee said on Monday it was unclear whether he could reach a compromise with Democrats on housing legislation and was prepared to walk away from a bad bill.

"It would not bother me if at the end of the day we are not able to work something out and in my judgment and the judgment of my colleagues on the Republican side, we collectively felt that this was not a good piece of legislation," Sen. Richard Shelby of Alabama told Reuters.

While Republicans are in the minority in Congress, Shelby's blessing of key housing legislation would boost its chances of passage by the full Senate. The banking committee is expected to vote on housing legislation on Thursday.

"Will we reach an agreement between now and Thursday? I'm not sure. We're going to continue to talk and work," he said.

"We're still talking... We haven't gotten to an agreement yet, but we are negotiating."

The package sponsored by Democratic Sen. Christopher Dodd of Connecticut, the panel's chairman, would boost government guarantees for failing home loans and create a new regulator for government-sponsored housing finance companies Fannie Mae (FNM.N: Quote, Profile, Research, Stock Buzz) and Freddie Mac (FRE.N: Quote, Profile, Research, Stock Buzz).

According to the conventions of the Senate, legislation that does not have bi-partisan support at the committee level has trouble clearing the Senate. (Reporting by Patrick Rucker; Editing by Tim Dobbyn)