A key US Senate committee passed bipartisan-supported legislation Tuesday that will provide meager relief to homeowners while allowing banks and mortgage companies to receive government backing for some failing loans.

he bill has the broad support of the financial industry, which is facing tens of billions of dollars in losses from the housing market decline and the broader credit crisis.

Coming in an election year, the legislation is a gesture at aiding distressed homeowners, but it will do nothing for most of those affected by the collapse of housing prices and the rise in foreclosures. Its principal aim is to stem the losses suffered by banks and other financial institutions as a result of the chaos in the mortgage-backed securities market.

The main provision in both the House and Senate versions is the creation of a fund under the Federal Housing Administration (FHA) that would allow homeowners with good credit who have fallen behind on their payments to negotiate with their lenders a reduction in the outstanding principal. The FHA would then guarantee the loan under a new, fixed-rate, 30-year mortgage. The bill provides for a fund to cover up to $300 billion in loans.

Since the plan is entirely voluntary, it would allow the banks to modify a given loan only when it considered that option more profitable than risking default under the old terms. At the same time, any losses from defaults on the new mortgages would be covered by the government.

Only a small minority of distressed borrowers are expected to benefit from the new fund. The Congressional Budget Office (CBO) has estimated that a maximum of 500,000 homeowners would qualify. In contrast, some 1.5 million families are already in foreclosure, and another 2.8 million are expected to file over the next four years.

There are about 8,000 new foreclosures every day throughout the country. US foreclosure filings in April were 65 percent higher than a year before.

This is just another political band aid for the financial gunshot wound.