Democratic legislation that would allow more Americans to refinance their mortgages has stalled in the Senate amid a partisan dispute over whether to allow votes on other housing measures.

The procedural stalemate appears likely to deny President Obama a victory on one of his top economic agenda items for 2012 — which, some Democrats argue, is precisely what Republicans want.

The parties are at odds over a bill sponsored by Democratic Sens. Robert Menendez of New Jersey and Barbara Boxer of California that would make refinancing easier for millions of homeowners with Fannie Mae and Freddie Mac mortgages.

At a May hearing on the legislation, Republican Sen. Bob Corker of Tennessee raised a number of specific concerns about the refinancing bill, but he also expressed openness to supporting the measure if those issues were addressed.

In the nearly three months since then, negotiations between the Democratic-led Senate Banking Committee, chaired by Sen. Tim Johnson of South Dakota, and the committee's top Republican, Sen. Richard Shelby of Alabama, have failed to yield tangible progress.

The negotiations have not faltered as a result of any specific Republican objections to the refinancing bill, according to sources. Rather, Shelby has been seeking an agreement by committee Democrats to allow votes on amendments to the bill on other housing policy issues.

Specifically, Republicans have expressed interest in securing votes on amendments that would address the reform of Fannie Mae and Freddie Mac, as well as reform of the Federal Housing Administration, according to sources. (Last week the Treasury unveiled a new plan to speed up the dissolution of the GSEs.)

Another potential amendment that Republicans have raised in the talks would provide lenders a legal safe harbor if they meet the terms of a so-called "qualified mortgage," a term that must be defined soon by the Consumer Financial Protection Bureau.

In the view of one Democratic Senate aide, Republicans have been trying to load up the Menendez-Boxer bill with extraneous amendments that go beyond the scope of the refinancing measure, some of which could doom the bill's chances for passage.

A safe harbor amendment, which would draw opposition from consumer groups, is seen as particularly problematic for Senate Democrats, because it could peel off Democratic support for the refinancing legislation.

In their July 18 securitization mid-year outllook, Deutsche Bank Securities analysts said that politicians have found ways to either streamline or extend the Home Affordable Refinance Program (HARP). 

According to them, the Menendez-Boxer bill does both. The legislation aims to reduce delivery fees, make reps and warrants the same across all servicers as well as push loan eligibility out a year to May 31, 2010, analysts noted.

Analysts predicted the probability that the bill passes the Senate by September at 60% and that it passes the House at 20%.

They recommended in the same report for investors to purchase TBA 30-year 5.5%s and 6.0%s then, a trade expected to rally with flat or falling HARP volume, but still avoid most of the negative headlines  caused by the Menendez-Boxer bill.

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