May 16 (Bloomberg) -- The U.S. Senate Banking Committee tentatively agreed on an anti-foreclosure measure that would have Fannie Mae and Freddie Mac foot part of the bill for a federal program to insure mortgages for struggling borrowers.

``We're not quite there yet,'' Senator Christopher Dodd, the Connecticut Democrat who heads the Banking Committee, told reporters yesterday. ``We're working at it. We've got a couple of outstanding issues. But we're very close to this.'' Lawmakers said they were confident enough about resolving remaining differences to schedule votes for May 20.

The measure would overhaul regulation of Fannie Mae and Freddie Mac and allow borrowers at risk of foreclosure to refinance their homes with government-backed mortgages through the Federal Housing Administration. Dodd and Senator Richard Shelby of Alabama, the banking panel's ranking Republican, agreed to subsidize the FHA program using an affordable housing fund to be financed by the two government-sponsored enterprises.

If approved by the full Senate, the package would be combined with a bill passed last week by the U.S. House of Representatives over a White House veto threat. Shelby said he thinks President George W. Bush will support the Senate measure.

``It's a fair deal,'' Shelby told reporters in Washington yesterday. He said using the affordable housing fund would ``save the taxpayers money.''

The FHA program, which would insure up to $300 billion in loans, is estimated to cost taxpayers $1.7 billion over the next five years, according to congressional analysts. Those costs could run higher if foreclosures exceed forecasts.

Payment Cap

Lawmakers are debating whether Washington-based Fannie Mae and McLean, Virginia-based Freddie Mac, the biggest sources of money for U.S. mortgages, should cover the whole tab or have their payments capped at the program's projected cost of $1.7 billion, Shelby spokesman Jonathan Graffeo said yesterday.

Dodd proposed letting borrowers with hybrid adjustable-rate mortgages refinance into fixed-rate loans guaranteed by the FHA. Lenders would be protected against defaults on the refinanced mortgages in exchange for agreeing to absorb some of the costs by writing down a portion of the loan balance.

Shelby and other Republicans opposed Dodd's proposal, saying it would reward irresponsible lenders and borrowers at taxpayers' expense. The White House singled out a similar provision in the House bill in its veto threat last week.

``I do not think the people back in Kentucky sent me to Washington to bail out speculators, Wall Street executives and people who drained the equity in their homes to buy flat-screen televisions and new cars,'' said Senator Jim Bunning, a Kentucky Republican.

To contact the reporters on this story: Alison Vekshin in Washington at avekshin@bloomberg.net; Dawn Kopecki in Washington at dkopecki@bloomberg.net

Last Updated: May 16, 2008 00:01 EDT