Republican senators and the financial industry are closing ranks in an attempt to crush a controversial part of the Obama administration’s housing package.

Their target is a bill, aimed at stemming the rash of foreclosures, that would allow bankruptcy judges to reduce the principal and interest rate on mortgages.

Opponents believe that they can defeat the legislation. That would be a blow for President Barack Obama, whose administration is still pushing the bill as a key element of its housing plan.

White House backing made legislation look almost inevitable earlier this year. But the financial services industry mounted a fierce lobbying campaign in response, saying such a measure would create extra risk and uncertainty for lenders by exposing them to losses imposed by the unpredictable decisions of judges.

There are also fears that it could damage the value of mortgage-backed securities, which are already eroding banks’ balance sheets.

Financial Times