That would let bankruptcy judges alter the terms of a mortgage - either the interest rate of the loan or the principal - as part of personal bankruptcy proceedings.
The banking industry and critics in the Congress have argued that would increase costs of mortgage loans for all borrowers.
The modified plan still allows "cramdowns" by a bankruptcy judge, but only if the borrower has exhausted all other avenues to modify their loan and thus avoid foreclosure.
The issue highlighted the power of moderates and conservatives within the party, who showed their ability to stick together and force change on a bill that seemed to be heading towards easy approval.
Moderates in the Senate had already signaled they would also force changes on the home foreclosure bill as well.
It also comes as more moderate Democratic Senators met this week to air their grievances about the Obama budget outline issued last week by the White House.
The big question right now is whether those moderates will really throw their weight around on the budget and other major issues, or will they cave in when pressured by Democratic leaders and the White House.
Back to the mortgage bill, the new version also now has provisions which allow the feds to recoup money if the borrower sells their house soon after getting a revised mortgage courtesy of the new foreclosure plans from the Obama administration.
We'll see if the changes are enough to assure approval in the House.
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