Senate Democratic momentum on controversial legislation that would help troubled sub-prime borrowers stalled Tuesday after Republicans steered the chamber into a protracted debate over the war in Iraq and national security.

As much as 30 hours of debate over troop withdrawals and the U.S. campaign against al Qaeda began at mid-afternoon, delaying work on the housing bill strongly opposed by the banking industry because of a provision that would allow some homeowners to get out from under heavy mortgages.

After starting the day focusing on their attempts to address the foreclosure crisis, Democrats ended it mired in debate over a pair of bills by Sen. Russ Feingold (D-Wis.) over U.S. war policy. Republicans, for their part, found themselves in the ironic position of arguing for an extended debate on an unpopular war they say has finally turned a corner.
Majority Leader Harry Reid (D-Nev.) said he welcomed the debate and sought to tie the Iraq war to the slumping economy by noting its $15 billion-per-month cost estimate.

“You can’t separate the economy from the long bloody civil war in Iraq,” Reid said. “We’re not going to leave this subject. It’s too important to the American people.”

Likewise, Sen. Charles Schumer (D-N.Y.) warned of consequences for GOP presidential front-runner John McCain (R-Ariz.), saying the combination of the poor economy and climbing costs in Iraq “is going to really resonate with the American people… McCain’s Iraq policy will bring him big trouble.”

Minority Leader Mitch McConnell (R-Ky.) signaled his party is eager to have a long debate on the war, saying that the situation in Iraq a year ago was “not nearly as positive as it is now” after the U.S. troop surge.

“Why we should have a truncated version of the debate now strikes me as somewhat curious,” McConnell said.
Reid’s spokesman Rodell Mollineau, however, suggested that Republican dissent over the housing bill and their angst over whether to support the banking lobby was the real reason the GOP is pushing an Iraq debate.

“The bankers who fill their coffers don’t want them to vote for bankruptcy provisions, but they know that overall it’s a very good bill and people are struggling,” he said. “So they’re stalling for time.”

The housing bill includes measures to boost the housing industry and troubled borrowers, but also contains controversial language that would allow bankruptcy judges to rewrite the terms of mortgage loans on primary residences. Its supporters say the change could help as many as 600,000 homeowners avoid foreclosure. But it is fiercely opposed by the banking industry, which argues that allowing the value of mortgages to be reduced in bankruptcy will increase the cost of home loans.

The Bush administration weighed in firmly on the side of the banking lobby, arguing that the bankruptcy law changes “would undermine existing contracts.” The White House statement also complained that the bill’s $4 billion for state and local governments to redevelop abandoned and foreclosed homes “would constitute a bailout for lenders and speculators, while doing little to help struggling homeowners.”

Majority Whip Dick Durbin (D-Ill.) has helped lead efforts to craft the housing package and said leaders aren’t sure if the votes are there to end debate and trigger a vote on the bill.

“Procedurally, we should move to it without a problem. In terms of final passage, we are still whipping it and hope that some Republicans will join us,” he said.

In an attempt to win more support for the bill, Durbin has softened its language, in part by limiting it to sub-prime or non-traditional mortgages that existed before the law and instituting a means test for homeowners eligible to have their mortgage terms rewritten. Also, any beneficiary of the legislation who sells a home within five years would have to hand over part or all of the proceeds to the lender if it had risen in value.

One banking industry lobbyist said the compromise was aimed at Democrats who supported the 2005 bankruptcy overhaul and who may be wavering on the Durbin legislation. Eighteen Democrats joined Republicans to support the 2005 legislation, which made it far more difficult to get relief under the bankruptcy code.

Durbin said he tried and failed “for months” to win the banking industry’s support for the provisions he said will help families facing foreclosure.

“There comes a time when some of these banks frankly don’t have clean hands when it comes to the mess we’re in,” he said. “It’s time for these banks to step back and realize that they have to participate to stabilize this market.”

Sen. Mary Landrieu (D-La.), the most endangered Democratic senator facing re-election, said the bill is largely solid, but that she is tinkering with some components. Landrieu voted for the enacted bankruptcy bill in the last Congress and said she was still reviewing the bankruptcy section of the new, Democratic-written bill.

She argued that the bill should approach housing and banking policies differently across the country, instead of a uniform view.

“This crisis does not exist in a uniform way around the country,” she said. “It’s important that Congress act boldly to try to help. But I’m looking at how we can make the general suggestions more workable for the situation that is actually occurring in Louisiana and the Gulf Coast.”

Sen. Blanche Lincoln (D-Ark.), who also voted for the previous bankruptcy bill, said she also supports the Democratic plan.

However, some centrist Republicans are still weighing whether to support the measure — such as Sen. Olympia Snowe (R-Maine), who supported the Democratic stimulus plan earlier this month.

“I’m looking at that right now,” Snowe said of the bill and its bankruptcy provisions.

The banking lobby supports the other parts of the bill, including the foreclosure prevention funds and a tax change that would benefit financial firms that are registering losses.

Lobbyists predicted that a failed Senate vote on the package would doom the effort to use the bankruptcy code to help troubled borrowers.

“It’s going to be much harder for them to pass the bankruptcy bill absent these other good provisions,” said Francis Creighton, vice president of the Mortgage Bankers Association.

Feingold’s first bill, cosponsored by Reid and Sen. Robert Menendez (D-N.J.), would force U.S. policy in Iraq to change by restricting future funding to counterterrorism, force protection, training, and the redeployment of troops in the country for other reasons. A second bill sponsored by Feingold would require an analytical report on the U.S. strategy against al Qaeda, the status of U.S. resources and the assessment of the threat al Qaeda represents.

Manu Raju contributed to this article.