Senate Banking Committee leaders agreed to a multibillion-dollar expansion of FHA loan guarantee programs Monday, saying Fannie Mae and Freddie Mac would cover losses rather than taxpayers.

The Congressional Budget Office has estimated that taxpayers might be liable to up to $1.7 billion in losses if the program — approved May 8 in a 266-154 House vote — helps 500,000 borrowers over the next five years.

With the Bush administration threatening a veto, Senate action on the bill was thought to depend on the support of Sen. Richard Shelby, R-Ala., who had opposed leaving taxpayers on the hook.

A compromise announced Monday between Shelby and Sen. Chris Dodd, D-Conn., chairman of the Senate Banking Committee, would cover losses by tapping an affordable housing fund to be created as part of another bill strengthening oversight of Fannie Mae and Freddie Mac. The compromise was approved by the committee today in a 19-2 vote, moving the Federal Housing Finance Regulatory Reform Act of 2008 to the Senate floor.

As envisioned in a House bill passed last year, the fund would raise about $500 million annually by taxing Fannie and Freddie an amount equal to 1.2 basis points of their outstanding mortgages (see story).

Like legislation passed by the House, Dodd’s "Hope for Homeowners" plan calls for up to $300 billion in new FHA loan guarantees to help troubled borrowers refinance into fixed-rate loans when lenders agree to write down principal on existing mortgages.

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