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The hotly contested provision rewriting the bankruptcy code, opponents say, would allow borrowers to effectively rewrite their mortgage contracts and would prompt lenders to tighten their standards and raise interest rates.

''It would mean higher risk, higher interest rates and higher monthly payments,'' said Sen. Lamar Alexander, R-Tenn.

''The mortgage bankers, God bless them, say this is the end of civilization as we know it ... If these people go into court to be able to stay in there homes ... interest rates will go up all over America,'' he said. ''Well, that isn't the case at all.''

Tuesday's developments don't guarantee a successful result, but both parties are under great pressure to produce a bill that can pass this year. There's enough common ground for a bill, even though difficult negotiations remain on several fronts.

As part of the breakthrough, Republicans agreed to not weigh the bill down with amendments unrelated to the housing crisis.

The progress comes on the heels of steps by the Federal Reserve to broker the eleventh-hour sale of a major investment firm, the failing Bear Stearns Cos., to a rival. It guaranteed some $30 billion in Bear Stearns assets, including questionable mortgage-backed investments. The central bank also allowed investment houses to get emergency loans previously reserved only for commercial banks.

The Bear Stearns deal greatly ratcheted up the pressure on lawmakers and the Bush administration, who faced the possibility of being portrayed as favoring huge investment titans over millions of people threatened by foreclosure.

''When it was clear that a major investment bank was in trouble, the Bush administration rushed to the scene like firefighters responding to a five-alarm blaze,'' said Sen. Robert Menendez, D-N.J. ''But a full year into the subprime mortgage crisis, they have done nothing but hit the snooze button on the alarm as millions of homeowners watch their dreams go up in smoke.''

Dodd said that about 8,000 homes are being foreclosed on every day.

''Foreclosures of this magnitude are on a par with the severity of foreclosures during the Great Depression,'' Dodd said. ''Each day without action means more are losing their homes.''

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