The House dealt the financial industry a significant blow Thursday, passing a bill that would let bankruptcy judges modify the terms of the mortgages of troubled homeowners.

Lenders fiercely oppose giving judges the power to reduce the principal owed on a primary residence and order other modifications in mortgage terms. The banking industry says such actions would force banks to raise interest rates.

The House passed the bill 234-191, but Democratic leaders had a tough time getting their own members on board, and the legislation (HR 1106) could face a tough road in the Senate.

Senate Republicans unanimously voted against similar legislation last year, and were joined by several Democrats. Some senators have indicated that if the bill gets through their chamber, the provision offering judges the power to change more kinds of mortgages could be narrowed to overcome opposition.

The bill went through considerable negotiation and compromise to get this far.

A group of centrist and conservative Democrats had feared there might be a backlash from constituents already wary of trillions of dollars in bank bailouts.

Speaker Nancy Pelosi , D-Calif., worked with dissidents, and they wrote compromise language that would give bankruptcy judges the option to reduce interest rates before directly cutting the principal of a mortgage. It also would let lenders collect a portion of the profit if a home is sold within four years of a mortgage modification.

“Bankruptcy will remain, as it always has been, a last resort, and modifications will be at the individual discretion of a bankruptcy judge who will determine if a borrower has acted responsibly and if a claim has any merit,” said Alcee L. Hastings , D-Fla.

Republicans, much like the banking industry, complained that by stopping short of mandating that judges consider other options, the bill did nothing to move reductions in principal to the bottom of modification options.

“Meaningful change also would have meant substantially narrowing the class of loans eligible for bankruptcy modification,” said Lamar Smith , R-Texas, the ranking member of the House Judiciary Committee.

The House-passed bill, which incorporates several of the legislative initiatives laid out by the Obama administration in its $75 billion housing plan released in February, would give mortgage servicers that rework mortgages a “safe harbor” from lawsuits if a homeowner defaults on a revised loan or appears likely to default. The legal shield would apply if the servicer believed that modifying a mortgage would produce more revenue than a foreclosure would have.

Some mortgage servicers are reluctant to revise troubled loans without such protection, fearing they could face suits from investors who hold securities that are backed by the mortgages.

The bill also would overhaul the Hope for Homeowners program. That $300 billion program, enacted last summer (PL 110-289) was designed to aid up to 400,000 troubled homeowners.