How much relief community banks will get under the Treasury Department's proposal will hinge in many cases on how the government decides to deal with bad loans to home builders.

Construction loans for housing developments account for most problem loans on community banks' books, and banking trade groups, as well as regulators, have been pressing lawmakers and Treasury officials to include them in any bailout plan. Details of the Treasury proposal are still being worked out, but community banking advocates say they are optimistic that the language will give the Treasury authority to buy loans that developers have struggled to repay as demand for housing has weakened.

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