Two key Senators on the Senate Banking Committee have reached an agreement to help distressed homeowners.

According to Bloomberg:

“The primary goal is to keep people in their homes, but also to help establish a floor and a bottom” to the housing slump, Dodd, a Connecticut Democrat, told reporters during the call.

The proposed legislation would a create a Federal Housing Administration program to insure up to $300 billion in refinanced mortgages for struggling borrowers after loan holders reduce principal. The Banking Committee is scheduled to debate and vote on the plan tomorrow.

According to CNN Money:

The deal was struck between the top Democrat and Republican on the Banking Committee: Chairman Christopher Dodd, D-Conn., and Ranking Member Richard Shelby, R-Ala.

“This legislation is good news for both the markets and homeowners,” Dodd said in a statement. “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.”

Dodd and Shelby had been in prolonged negotiations over the bill.

A key sticking point has been Shelby’s push to shield taxpayers if borrowers default on their payments after getting government-backed loans. He has said that he wants the FHA plan funded by redirecting money that Dodd’s original bill earmarked for a new affordable housing trust fund. The funds would be paid by Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500).

I’ve already expressed my thoughts on this bill in a prior post called “FHA: The Be All and End All of Loans“. I’m just glad that the tax payer is not on the hook for any of this – if you’re to believe Uncle Sam that is.

Image: Shared under creative commons license from submarginals’.