UPDATE 4-U.S. Senate panel passes housing rescue plan

(Fixes Update number in headline)

* Panel vote sends mortgage rescue bill to full Senate

* Bill could help 500,000 homeowners facing foreclosure

* Fannie Mae, Freddie Mac to cover costs under Senate bill

* Committee chairman hopes Bush can sign bill by July 4

By Patrick Rucker

WASHINGTON, May 20 (Reuters) - The U.S. Senate Banking Committee approved legislation on Tuesday that could save a half million homeowners from foreclosure and help stabilize the nation's rattled housing market.

Under the plan, lenders who agree to erase a large share of the original loan amount could win a government guarantee on future mortgage payments. The bill would also create a stronger regulator for mortgage-finance companies Fannie Mae (FNM.N) and Freddie Mac (FRE.N).

Both the Senate bill and a similar plan passed by the House of Representatives earlier this month would create a fund under the Federal Housing Administration to allow distressed homeowners to refinance into government-guaranteed loans.

Congress is trying to stem a wave of foreclosures estimated at about 1.4 million this year with home prices falling and many borrowers unable to make payments on costly mortgages taken out before the real estate bubble burst.

Senate Republicans and the White House had worried a new FHA program would put taxpayers on the hook for failing loans. But under the compromise bill passed by the Senate panel, Fannie Mae and Freddie Mac will absorb loan losses.

The bill that cleared the Senate committee on Tuesday now must go before the full Senate for a vote. If approved, lawmakers will need to hammer out a compromise between the competing House and Senate versions.

Rep. Barney Frank, chairman of the House Financial Services Committee and the author of the House legislation, said he had questions about how the Senate plan would fund mortgage rescues. But he said he expects lawmakers from both chambers to agree on a bill that can go to President George W. Bush.

Democratic Sen. Christopher Dodd of Connecticut, chairman of the Senate panel, has said he hopes to see the mortgage rescue package reach Bush by July 4.

While the White House had threatened to veto the House bill, it said it will take a close look at the Senate version.

"I don't believe the president will veto this," Sen. Richard Shelby of Alabama, the top Republican on the banking panel, told reporters after the vote.