Senate kills bankruptcy revamp in housing bill

By Kevin Drawbaugh

WASHINGTON (Reuters) - The Senate on Thursday rejected a Democratic proposal that would have rewritten bankruptcy law to help struggling mortgage borrowers, while moving ahead with debate on a housing market rescue bill that includes a $6 billion tax break for home builders.

In a 58-36 vote, the Senate defeated an amendment offered by Assistant Senate Democratic Sen. Richard Durbin to empower bankruptcy judges to ease mortgage payment terms for distressed borrowers under strictly limited circumstances.

The Durbin amendment -- which would have affected only mortgages already in place upon enactment -- was opposed by the influential banking industry and Republicans, who were joined by 11 Democrats in voting to kill it.

Banking lobbyists and Republicans said the Durbin amendment would intrude on contracts and drive up interest rates.

"The provision I offered was narrowly tailored and provided real help to more than half a million American homeowners facing foreclosure," Durbin of Illinois said after the vote.

"Unfortunately, my amendment was strenuously opposed by the banking lobby and their powerful friends in the Bush Administration and in the Senate," he said.

The Senate then resumed debate on a broad housing bill it hammered out earlier this week as a scaled-back compromise drawn up by Democratic and Republican leaders.

On a separate track, the Durbin measure was approved as a bill by the Senate Judiciary Committee. That means it could return to the full Senate, but again face stiff opposition.