WASHINGTON — The Senate began debate Thursday on a bill that leaders have pitched as much-needed relief for distressed homeowners, but would give an estimated $6 billion in tax breaks to help the home-building industry.
The tax-break provision, the largest expense in the multibillion-dollar measure, came under scrutiny as senators rejected a controversial amendment that supporters insisted would have tilted the bill more toward helping homeowners.
The amendment, offered by Sen. Richard J. Durbin (D-Ill.), would have let bankruptcy judges modify the terms of mortgages for primary residences. It was defeated by a 58-36 vote.
"Our goal ought to be preventing foreclosures, not just propping up home builders and big lenders," Durbin said after the vote.
The proposal was opposed by mortgage lenders, the White House and a majority of Republicans, who contended it would raise borrowing costs for all home buyers.
A coalition that includes the Center for Responsible Lending and Consumer Federation of America said the bill was now devoid of "the single most significant step needed to help the 20,000 American families with sub-prime loans that are losing their homes each week through foreclosure."
The bill is expected to clear the Senate next week, but the vote on the bankruptcy measure exposed a divide that will complicate efforts to pass more sweeping legislation.
House Speaker Nancy Pelosi (D-San Francisco) said the bill needed to be improved so "the balance will swing to being more in favor of the families who are in danger of losing their homes."
The House Financial Services Committee next week will consider a proposal by its chairman, Rep. Barney Frank (D-Mass.), to grant the Federal Housing Administration expanded powers to back the refinancing of troubled mortgages by providing $300 billion in new loan guarantees.
Lawmakers from both parties have come under intense pressure to respond to the mortgage meltdown after the Federal Reserve helped engineer the rescue of investment bank Bear Stearns Cos.
The Senate bill is a compromise drafted by the top Democrat and Republican on the Banking Committee. It provides a tax credit for buyers of foreclosed homes, more than $1 billion to help states issue $10 billion in bonds to refinance sub-prime loans, and $4 billion to help communities, especially in California, hard hit by foreclosures.
