By a vote of 84-12, the Senate cleared away the last procedural hurdle hindering the measure, putting the election-year aid package on track for approval by week's end.
An objection from one of the Senate's most conservative Republicans will likely delay passage until Friday. Sen. Jim DeMint, R-S.C., who regards the measure as a bailout for unscrupulous lenders, was the lone holdout.
Beyond the Senate, however, the measure is far from complete, with House leaders planning to rewrite key portions and the White House still threatening a veto.
The centerpiece of the plan would let the Federal Housing Administration back up to $300 billion in new loans to provide struggling homeowners with more affordable, fixed-rate mortgages. It allows lenders who agree to take a substantial loss on the mortgages to reclaim at least some money and avoid a costly foreclosure.
"Unless we act and do so promptly, we're going to look at a situation that only gets worse," said Sen. Christopher J. Dodd, D-Conn., the Banking Committee Chairman who is an architect of the bill.
Passing it, Dodd added, would dispel "a growing fear in the country ... that we're incapable of doing much here. We can't seem to get much done."
The measure includes a long-sought modernization of the FHA and would create a new regulator and tighter controls on Fannie Mae and Freddie Mac, the government-sponsored mortgage giants. It also would provide $14.5 billion in housing tax breaks, including a credit of up to $8,000 for first-time home buyers.
Congressional Democrats are divided over small but important elements of the plan, including limits on loans the FHA may insure and Fannie and Freddie may buy. The Senate measure sets them at $625,000, while House leaders - including Speaker Nancy Pelosi, D-Calif., - want the cap as high as $730,000.
House leaders also oppose the immediate effective date of the Senate plan, preferring to phase in the new regulations for Fannie and Freddie over six months.
The House's band of conservative "Blue Dog" Democrats oppose the $3.9 billion in the Senate measure bill for buying and rehabilitating foreclosed properties. They call that a showstopper for the overall bill because they argue it would swell the deficit unless cuts or tax increases are found.
The White House singled out the money in its veto threat, calling it a bailout for lenders who helped cause the mortgage meltdown.
But another Democratic faction, the Congressional Black Caucus, is fighting hard to keep the funding, saying it's crucial to preventing blight in communities hit hardest in the housing crisis.
The caucus also objects to the Senate bill's bar on mortgage programs that let sellers cover the borrower's downpayment, something they argue will cut off many African Americans from the opportunity to own a home.
The White House wants to do away with seller-funded downpayment assistance programs, which officials say default at high rates, potentially opening the government to huge losses.
Lawmakers and the Bush administration agree on the central concept behind the measure: allowing the government to backstop new mortgages for struggling homeowners.
To make it more palatable to Republicans, the Senate measure would take responsibility for any losses away from taxpayers and instead cover them by diverting an affordable housing fund drawn from Fannie's and Freddie's profits.
That approach didn't satisfy the most conservative Republicans, though.
"This is a $300 billion bailout for bad lenders that forces American taxpayers to foot the bill," said Wesley Denton, DeMint's spokesman.