More Bailout Politics

As our Mike Lillis reports, the bailout wars are heating up as lawmakers wrestle with the $700 billion Treasury Depart. rescue plan for the financial markets. As the reaction to the bailout goes from surprise and fear to concern over giving Wall Street a blank check, Democrats in particular are moving to add proposals to the bill. One is a long-sought measure by housing advocates to allow bankruptcy judges to modify mortgage loans to make them more affordable.

For years, consumer groups have pushed this idea, and for years It’s been strongly opposed by the lending industry. The lenders always won.

While it looks the proposal might have a fighting chance this time around, Housing Wire says its sources tell it that lawmakers are more concerned about making sure there are limits on executive compensation for Wall Street executives. The lawmakers may be willing to give up fighting for the bankruptcy provision in return for capping executive pay, according to Housing Wire.

Also on the table: A proposal to force the government to renegotiate the terms of the mortgages it buys. There aren’t many details out yet on this. It’s worth following, since it’s not clear how the government could do loan modifications, except in cases where it controls the financial institutions in question – IndyMac, Fannie Mae and Freddie Mac. But the loans it will buy will come from many other banks and lenders, and some experts don’t think even the government, with all its power and money, will be able to modify loans that have been sliced and diced into many pieces and spread around the globe.

Nonetheless, the fact that any kind of help for homeowners might be included in the measure is a big step up from last week, when the plan was introduced, and from over the weekend, when Treasury Secretary Henry Paulson said the plan wouldn’t cover anything for consumers.

Support for the plan keeps changing, and lawmakers seem to want more help for homeowners and more punitive measures for Wall Street. Let’s see how far they really get.