With what surely passes as warp-speed on Capitol Hill, the Senate on Wednesday afternoon reached tentative bi-partisan accord on a wide-ranging housing bill.

On Tuesday afternoon the Senate voted 94-1 to move forward on legislation to help homeowners facing foreclosure. While there were still substantial differences between Democrats and Republicans on the content of such a bill, there was agreement that something needed to be done and, in the shadow of the $30 billion in assistance given to Bear Stearns last week, it needed to be done quickly. Senators Christopher Dodd (D-CT) and Richard Shelby (R-AL) Chairman and ranking member of the Senate Banking Committee were charged with hammering out a bill that the entire Senate could agree on and given a deadline of noon the next day (Wednesday) to do so.

Senate staffers worked through the night to meet the deadline and the revised bill will probably reach the Senate floor on Thursday. The bill retains little in direct aid to homeowners but does include a new standard property tax deduction of $1,000 for couples and $500 for individuals who do not itemize deductions on their tax returns.

If the legislation is adopted there will be a $7,000 one-year tax credit for purchasers of foreclosed home � a compromise, the Democrats had proposed $15,000 over three years � and $4 billion in grants to allow local governments to buy foreclosed property for resale or for use as low-income rentals.

The National Association of Home Builders has been asking for a change in the tax code which would allow builders to carry back current losses as deductions against taxes paid in earlier, more profitable years. This piece of economic stimulus is part of the proposed bill.

The bill also includes $10 billion in tax-exempt bonds for local housing agencies to refinance subprime loans and provide new mortgages for first-time home buyers and $100 million to expand counseling for homeowners at risk of defaulting on their loans.

Under the new bill the cap on mortgages insured by the Federal Housing Administration (FHA) would be set at $550,000 in the most expensive real estate markets. The limit was temporarily raised in February as part of the economic stimulus package to $729,750. We assume that this lower limit will come into effect only after the higher temporary limit expires. The down payment required for FHA loans will be raised to 3.5 percent from the current 3 percent.

Several parts of the original bill did not survive bi-partisan negotiation. The most controversial of these is a proposal to change the bankruptcy code to allow judges to modify the terms of mortgages on primary homes. Republican legislators had strongly opposed this provision. Also missing is a plan to extend $300 to $400 billion in federally guaranteed mortgages to help homeowners facing rate resets or already in trouble with their mortgages to refinance. According to Senator Dodd, this proposal may find its way into separate legislation in the weeks ahead.

While the speed with which the new bill was hammered out bodes well for its passage, it is not all clear sailing. The proposals will be presented to the whole Senate where several amendments are already expected. Among them will be an attempt to put the bankruptcy code changes back in the bill and to restore both the $15,000 tax credit for buying foreclosed homes and an additional $100 million for homeowner counseling that was stripped out of the earlier bill.

There is also a chance that some fiscally conservative members will fight for pay-as-you-go to fund some of the tax breaks which would require $11 billion in tax increases, a provision guaranteed to set off a fight.

In whatever form the bill finally passes the Senate, assuming it does, it must be reconciled with the House version of the bill which was passed earlier and then be signed by the President. The White House�s immediate reaction to the proposed legislation was friendly but did not offer any commitment that the President would accept all of the bill�s provisions. According to a press representative there were concerns about the tax credit provision and the funding to the states to purchase foreclosed properties.