Bailout Effort Dealt a Setback

Negotiations between Republicans and Democrats fall apart.

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Democratic efforts to pass a housing rescue were dealt a fresh setback yesterday with word that negotiations between the leading Senate backer of the initiative and its key opponent fell apart.

From the Washington Post:

Talks broke down late Friday between aides to Senate Banking Committee Chairman Christopher J. Dodd (D-Conn.) and the senior Republican on his committee, Richard C. Shelby (Ala.), aides said. The two camps had been trying for more than a month to develop a bipartisan proposal to ease the nation's housing crisis.

Although a Shelby spokesman did not close the door on future talks, the breakdown is terrible news for bailout supporters. It will be nearly impossible to pass the legislation without Shelby's support.

Last week, the House of Representatives passed a bill that would allow distressed borrowers to refinance into more affordable loans backed by the Federal Housing Administration. The legislation is being championed by Massachusetts Democrat Barney Frank, the House Financial Services Committee chairman.

Federal Reserve Chief Ben Bernanke recently endorsed the key tenet of the legislation, but Brian Montgomery, head of the Federal Housing Commission, opposes the Frank plan, and the White House has vowed to veto it.