Senators say have deal on housing rescue bill

By Patrick Rucker

WASHINGTON (Reuters) - Leaders of the U.S. Senate Banking Committee said on Monday they had reached a deal on legislation to create a multibillion-dollar mortgage rescue fund and a new regulator for housing finance companies Fannie Mae and Freddie Mac.

The plan would enable the Federal Housing Administration to guarantee billions of dollars in refinanced mortgages for homeowners whose properties have fallen in value since they took out their loans.

"The bill addresses the root of our current economic problems -- the foreclosure crisis -- by creating a voluntary initiative at no estimated cost to taxpayers which will help Americans keep their homes," Democratic Sen. Christopher Dodd, the committee's chairman, said in a statement.

The rescue plan would give a federal guarantee to failing mortgages once the lender erased at least 15 percent of the original loan amount -- an offer that might appeal to mortgage investors who have seen foreclosures spike and home values sink over the past 12 months.

In the last week, Dodd and Sen. Richard Shelby, the panel's top Republican, have haggled over how to pay for the rescue plan. The bill that they agreed to, which is expected to clear the Senate Banking Committee on Tuesday, would have Fannie Mae and Freddie Mac cover the expected $500 million in failed loans under the program.

"This is a victory for the taxpayers, " Shelby, of Alabama, said on CNBC. "We're not funding this."

The U.S. House of Representatives approved a similar bill earlier this month that the nonpartisan Congressional Budget Office predicts would leave the government holding $1.7 billion in bad loans and help 500,000 struggling borrowers.

Dodd told reporters that his plan is more modest than the House bill but puts "a floor" under some sinking home loans. Once Fannie Mae and Freddie Mac help cover the costs of the rescue effort, Dodd said, they will help build a long-lasting fund to promote affordable housing nationwide.