WASHINGTON — The Treasury Department and congressional Democrats edged closer Monday to reaching a final deal on legislation that would create a facility to buy and hold up to $700 billion of troubled bank assets.
The Treasury has already given in to at least one major demand from lawmakers, agreeing to require servicers to rework any mortgage loans bought by the government. But the fate of other provisions remained unclear.
House Financial Services Committee Chairman Barney Frank said two issues remained unresolved: limiting executive compensation at companies that use the facility and allowing judges to rework mortgages in the bankruptcy process.
Though the Massachusetts Democrat said the Treasury had also agreed to let the government take an ownership stake in troubled companies, a source close to the Treasury disputed that.
Confusion over what was in or out of the bill was par for the course on Monday as different drafts circulated on Capitol Hill. Work on the legislation was proceeding at breakneck speed, and some lawmakers said Monday that they are confident they can pass a bill.
"A great deal of progress has already been made," Rep. Frank told reporters.
He said his staff would check in with Senate Banking Committee Chairman Chris Dodd's staff late Monday to ensure that both chambers are on the same page. Lawmakers are trying to forgo the traditional back-and-forth between houses of Congress and pass the same bill out of both chambers this week.
But Sen. Richard Shelby, the top GOP member of the Senate Banking Committee, became more vocal about his concerns with the bill, saying he was concerned that "Treasury's proposal is neither workable nor comprehensive, despite its enormous price tag."
"In my judgment, it would be foolish to waste massive sums of taxpayer funds testing an idea that has been hastily crafted and may actually cause the government to revert to an inadequate strategy of ad hoc bailouts," the Alabama Republican said. "Given that markets have recently taken confidence in the prospect of government involvement, I believe Congress must immediately undertake a comprehensive, public examination of the problem and alternative solutions rather than swiftly pass the current plan with minimal changes or discussion."
Sen. John McCain, the Republican presidential nominee, said he was "deeply uncomfortable" with the bailout plan but stopped short of opposing it.
But after assembling a bipartisan group of Banking Committee members Monday afternoon, Sen. Dodd and other committee members vouched to work together in a bipartisan manner.
Sen. Robert Bennett, the No. 2 Republican on the banking panel, said Congress must do something.
"We are convinced that inaction could be a disaster," the Utah Republican said. "We don't want to take the wrong action. We don't believe that inaction is an option."
Sens. Mel Martinez, R-Fla., Chuck Hagel, R-Nev., and Bob Corker, R-Tenn., also added their voices to those supporting Treasury's core concept.
"I don't think we have an option not to," Sen. Martinez said.
The Senate Banking Committee is scheduled to hold a hearing on the crisis in the housing markets today.
Negotiations made progress after the Treasury agreed to add loan-loss mitigation measures to its plan. In revised legislative language obtained by American Banker, the Treasury would require any company that services a loan bought by the government to follow "industry best practices … including into sustainable modifications to avoid preventable foreclosures."
The Treasury said it would also agree to "appropriate" modification of loans that underlie assets bought by the government, including changing terms, interest rates, or principal amount.
Democrats had insisted on some type of modification requirement in a final bill.
The Treasury has also agreed to limit its power over the facility and to bolster taxpayer protections, Rep. Frank said. The revised bill strips out provisions designed to give the Treasury legal immunity for operation of the facility and would create an oversight board for the facility.
The banking industry was focusing much of its lobbying effort on trying to keep the bankruptcy provision out of the bill. They have argued that letting judges rework mortgages would raise interest rates and dry up credit. Democratic lawmakers said it was necessary to help struggling homeowners.
Jaret Seiberg, an analyst at Stanford Washington Research Group, said the bankruptcy provision was too controversial to pass.
"I don't think bankruptcy can get in," he said. "I think that would be one of those provisions that would sink the bill."
But Brian Gardner, an analyst at KBW Inc.'s Keefe, Bruyette and Woods Inc., disagreed. The Democrats have more leverage on bankruptcy this time, he said.
"I think [Treasury] will probably fight harder on bankruptcy than executive compensation, but I think in the end if Democrats want it in there it will be in there," Mr. Gardner said. The administration has "very little leverage. The administration is not in a place to be turning that down."
Many observers said it was likely Democrats would succeed in getting some type of limitation on executive compensation in the bill. Rep. Frank said it was "inconceivable" such a provision would not be included.
But the White House was continuing to push for a "clean" bill.
"In our experience, the quickest way to get something done is to do it cleanly," said White House spokeswoman Dana Perino.