The Senate voted 83-9 to speed up work on the $300 billion mortgage aid plan, putting it on track for a final vote as early as the end of the day.
The resounding vote reflected a keen interest in both parties in claiming election-year credit for helping homeowners amid tough economic times.
Still, the measure faces a veto threat from President Bush and disputes among Democrats about key details. Those challenges will probably delay any final deal until mid-July.
Sen. Christopher J. Dodd, D-Conn., the Banking Committee chairman, said the legislation "would allow us to begin to put a tourniquet on the hemorrhaging of foreclosures in this country."
"What better gift on independence could we give the American people than a sense that this, their Congress of the United States, can come together, despite political differences, and craft legislation to make a difference for our country," Dodd said.
Senate passage would set the stage for high-stakes negotiations to resolve Democrats' differences. Conservative Democrats known as "Blue Dogs" are concerned about how to pay for the measure, while members of the Congressional Black Caucus - most of them liberal - call it "unacceptable," arguing it doesn't do enough to address the needs of African Americans.
Leaders also are divided on how high to place loan limits that apply to government mortgage insurance and financing.
The centerpiece of the package is a foreclosure rescue program in which the Federal Housing Administration would provide $300 billion in new, cheaper mortgages for distressed homeowners who otherwise would be considered too financially risky to qualify for government-insured, fixed-rate loans.
Borrowers would be eligible for the housing rescue if their mortgage holders were willing to take a substantial loss and allow them to refinance, and would ultimately have to share with the government a portion of any profits they made from selling or refinancing their properties.
The measure was advancing as a widely watched housing index said U.S. home prices fell in April at their steepest rate since the index began in 2000. The Standard & Poor's/Case-Shiller home price index of 20 cities fell by 15.3 percent in April versus a year ago, according to Tuesday's report.
A separate report from the Office of Federal Housing Enterprise Oversight said U.S. home prices fell 4.6 percent in April from the same month last year, when the index peaked. The government index is calculated using mortgage loans of $417,000 or less.
The bill would tighten controls and create a new regulator for Fannie Mae and Freddie Mac, which provide huge amounts of cash flow to the mortgage market by buying home loans from banks.
It also would provide a $14.5 billion array of tax breaks, including a credit of up to $8,000 for first-time homebuyers who buy a home in the next year and boosts in low-income tax credits and mortgage revenue bonds.
In a letter to Democratic leaders last week, the 42 House members of the Black Caucus said the bill is plagued with "glaring omissions," including affordable housing funds for states affected by Hurricane Katrina and grants for states and localities to buy and fix up foreclosed properties.
To draw GOP support, Senate Democrats diverted the affordable housing money to pay for the foreclosure aid program.
The Senate bill provides $3.9 billion in grants to deal with foreclosed properties - compared with a House plan providing $15 billion - but the White House singled out the funds in its veto threat, and Blue Dogs are demanding that the money be offset with cuts elsewhere.
Rep. Barney Frank, D-Mass., the Financial Services Committee chairman, said he'd be willing to yank the money and add it to a separate measure in the interests of a deal.