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What’s a Republican to do? You’ve been asked to dance with Democrats to fix the country’s housing slump, but you don’t trust them to lead. Plus, you’re not sure you want to boogie in the first place.

[IMGCAP(1)]That’s the conundrum the GOP faces this week as both chambers dig into the foreclosure and credit market crises following a two-week recess that saw the failure of a major investment bank and continued reports of economic woes caused in part by the collapse of the subprime mortgage market.

Republicans appear to be in a bit of an ideological bind, with many arguing for little or no government intervention and others trying to put together legislative proposals that incorporate GOP reliables such as tax relief and market-based solutions.

Republicans in the House and Senate “are caught between conservative economic philosophy and reality,” said one senior Senate Democratic aide.

When Senate Majority Leader Harry Reid (D-Nev.) originally tried to bring up his party’s self-proclaimed housing “stimulus” bill in late February, Senate Republicans appeared to be floundering for counterproposals, finally choosing to filibuster the Democratic proposal.

Now that they’ve had some time to think about it, they continue to be deeply skeptical of the Democrats’ plans while offering their ideas to provide tax credits for some new home buyers and increase localities’ bond authority to refinance distressed mortgages.

Democrats “are trying to be warm and fuzzy, and we want to help people — but not just in the short term, in the long term as well,” said one Senate GOP leadership aide. “Our concern is that if government gets in there and does what they want it to do, you’re distorting things … and prolonging the slump.”

Republicans know they don’t like what the Democrats are offering, but as of Monday afternoon, Senate Republicans still weren’t clear on what they would do when Reid moves to reconsider the housing bill. (Technically, Reid will be moving to reconsider an end to debate on whether the Senate should even proceed to the housing bill.)

All indications are that GOP leaders are waiting until today’s policy lunch to find out whether their rank-and-file want to block the bill again or begin debate under rules that could limit amendments.

It’s a tricky political calculation for some Republicans — such as Sens. Mel Martinez of Florida, George Voinovich of Ohio and John Ensign of Nevada — whose states have been hit hard by housing foreclosures. But it’s unclear whether any of those will make up the nine GOP Senators that Democrats need to secure the 60 votes needed to beat back a filibuster.

Republicans acknowledge that they worry about agreeing to debate the bill before having any certainty regarding how the final version will look. For example, most GOP Senators want to make sure they can eliminate a provision that would allow bankruptcy judges to rewrite the terms of mortgages for primary residences.

Senate Republican Conference Chairman Lamar Alexander (Tenn.) said the provision would “turn home mortgages into junk bonds by making them riskier” and that it could end up driving up interest rates for other borrowers.

It’s clear that Republicans see value in having the debate in some form. “What the Senate should do is move forward to a full discussion of housing,” Alexander said.

Republicans likely would balk — and possibly block the bill from coming up — if Reid continues to insist on limiting amendments to housing-related issues, Alexander warned.

“If Sen. Reid wants to have a housing debate, he knows how to do it,” Alexander said, explaining that Reid should allow a free-wheeling debate on all amendments.

That might include GOP amendments on permanently extending President Bush’s 2001 and 2003 tax cuts — a nonstarter for Democrats. However, Republican leaders have cooled to the notion of making that a big issue during any debate on housing, aides said.

Democrats would not fully commit to a completely open debate but appeared to leave the door open to more types of amendments than they were previously. “We would like nothing more than an open debate on this bill,” Reid said Monday on the Senate floor. “If people object to parts of our bill, they’re welcome to seek enough votes to amend it or change it.” He also offered to have a limited number of amendments.

Democrats, recognizing that they appear to have the upper hand politically, have been attempting to walk a fine line, using slightly toned-down rhetoric that still criticizes the Republicans and the White House for not wanting to do enough while offering to work with them to get something done.

“All we want tomorrow is for Republicans in the Senate to allow us to move to the legislation,” Reid told reporters on Monday. “Let’s legislate the way we used to.”

Senate Minority Leader Mitch McConnell (R-Ky.) indicated on the floor Monday that he would rather have side-by-side votes on the Democratic bill and a Republican-sponsored measure. Reid rejected that proposal, saying: “It would be a fool’s errand.”

Either way, Democrats could have a winning political issue. If Republicans decide to work with them, they’ll have one more “bipartisan” accomplishment to tout going into the election. If Republicans filibuster, Democrats have a 30-second attack ad for this fall.

Reid said he is prepared to try to keep the bill in the spotlight if Republicans block it from coming up.

“We’re not going to stop. If we can’t proceed to this, we’re going to stay on housing,” he said. It was unclear whether that means he will keep the issue on the Senate floor all week or if he will simply return to it often for votes.

“If the Republicans think this is just one vote and they’re done, they’re wrong,” said another senior Senate Democratic aide.

Senate Banking, Housing and Urban Affairs Chairman Chris Dodd (D-Conn.) said Monday that he and ranking member Richard Shelby (R-Ala.) are negotiating and “down to one issue” on his bill to encourage lenders to write-down the value of loans in danger of foreclosure. If the Senate begins debate on the housing “stimulus” bill, Dodd said he could add his measure before week’s end.

The housing stimulus bill would provide $4 billion in grants to localities to buy and rehabilitate foreclosed properties and another $200 million for at-risk homeowner counseling. It would also allow homebuilders to deduct their losses from past years.

In the more ideologically driven House, Republicans plan to meet with Federal Reserve Chairman Ben Bernanke Tuesday, but already some Members appeared skeptical of the need for an overhaul.

“Increased federal regulations are not the answer to our nation’s current economic concerns,” said Rep. Scott Garrett (R-N.J.), a member of the Financial Services Committee. “Like most Americans, I want market discipline — but the Congress cannot create that by needlessly empowering the Fed.”

And leadership was taking a cautious approach before Members had a chance to discuss what to do next, although they acknowledged that they feel a new political imperative to act.

“There is clearly a desire to do something, but the devil is frequently in the details,” said a GOP leadership aide. “We have to be very cautious that whatever we do doesn’t make the situation worse. … Republicans are wary of overreacting and stifling the market.”

House Minority Leader John Boehner (R-Ohio) sounded a conciliatory note last week, acknowledging a need for bipartisan action to address the housing market.

“House Republicans look forward to working with Chairman Bernanke, the president and his advisers, and our Democratic counterparts to stop threats to economic growth and American prosperity, both in the short term and in the long run,” Boehner said last week.

Boehner spokesman Michael Steel said Republicans are looking for a bipartisan approach similar to the one used to pass the stimulus package. “Losing your house isn’t a partisan issue,” he said. “That’s something that every American fears.”

But Republicans want to avoid “a taxpayer bailout to speculators and people who have committed fraud,” he said.

Steel sought to put the onus on Democratic leaders. “When Democrats reach across party lines to work in a bipartisan way, we can get things done and we can get things done quickly,” he said. “If they try to go it alone in a ‘my way or the highway’ strategy and leave Republicans out of it, they wind up in a quagmire.”

Speaker Nancy Pelosi (D-Calif.) appeared to set the stage for a second stimulus package alongside a housing and financial system overhaul.

“While [Treasury] Secretary [Henry] Paulson’s plan to restructure regulation of the financial markets is a step in the right direction, we need to go further: We must take steps now to provide help to families who are hurting,” Pelosi said.

House Democratic leadership aides said the administration is coming to the table with proposals — after Democrats have been laying out plans for months, only to have them scorned by Republicans. “For the administration to even acknowledge that they have to take some regulatory action is a huge break from the past,” one aide said. “It’s coming to the party a little late.”

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