As Congress heads back to Capitol Hill following its holiday break, real estate legislation is at the top of its immediate to-do list.

The most controversial pending bill involves -- you guessed it -- helping out financially-distressed homeowners heading for foreclosure.

House and Senate Democrats are pushing legislation that would allow bankruptcy judges -- for the first time ever -- to blow the whistle on foreclosures by modifying the terms of home mortgages -- even slashing the amount of debt owed to a lender.

Republicans in both houses, along with banking and mortgage lending industries, think that's a bad idea. They say banks would have to raise mortgage rates sharply if the bills pass. Why? Because lenders could never be certain about ever getting back what they were owed if judges could unilaterally reduce homeowners' loan balances.

So they'd charge everybody -- not just credit-impaired home buyers -- a lot more for mortgages.

The House Judiciary committee approved its bill in December before leaving town; and the Senate is expected to take up its version shortly.

It's a complicated issue: On the one hand, there's a real need to come up with ways to help families stay out of the financial disaster of foreclosure. But on the other hand, lenders need to have the right to get as much of their money back from delinquent borrowers as they can -- even if that means selling the property in a foreclosure.

Other top real estate issues heading for Congressional action in the near future include: Final approval of the long-awaited FHA Modernization Act that would raise maximum mortgage amounts -- and open the Federal Housing Administration's fixed-rate loans to home buyers and refinancers in high-cost areas of the country like California and the Northeast.

Both the House and the Senate have approved their own versions of the legislation and plan to get together to iron out differences, which could be completed before the end of the month.

Also on the agenda for quick action: Comprehensive mortgage market reform bills that would eliminate many of the wild and wacky practices that led to the subprime meltdown, including inflated appraisals and lax underwriting.

We are tracking these and other housing and real estate bills on a daily basis for you. Check back and we will keep you ahead of the game.

Published: January 3, 2008

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Kenneth R. Harney writes an award-winning, nationally-syndicated column on housing and real estate from Washington, D.C. He is also managing director of the National Real Estate Development Center, a professional education company. He is a past member of the Federal Reserve Board's Consumer Advisory Council, a committee that by federal statute reviews all Fed actions on home mortgage, consumer credit and banking industry regulation. He served as a member of the U.S. Department of Housing and Urban Development's Working Group on Computerized Loan Origination (CLO) systems, and is a member of the Editorial Board of the Fannie Mae Foundation's journal, Housing Policy Debate. He is the author of two books on mortgage finance and real estate.