Housing Woes Put Bush, Hill At Odds

The most controversial, however, is Durbin's proposal, which would allow bankruptcy judges to cut the interest rates of housing loans to the prime rate plus a "reasonable" premium for homeowners who cannot afford their subprime mortgages or other nontraditional loans.

This would reduce payments and allow them to keep their homes after emerging from bankruptcy.

Durbin said his proposal would extend to homeowners the same kind of protections that already apply to family farms, vacation condos and yachts.

"If I go into bankruptcy, a court can renegotiate the terms on my vacation condo but is prohibited from renegotiating the terms on my home," said Durbin, whose plan is backed by labor and civil rights groups, AARP and credit unions. "It makes no sense whatsoever."

The threat of a court-ordered change in interest rates would be enough incentive to persuade lenders to voluntarily renegotiate the terms of failing loans before a homeowner is forced to declare bankruptcy, Durbin said.

But the idea is vehemently opposed by the White House.

"We look at this bill as a bailout. But worse than that, it is interfering with contracts," said Tony Fratto, White House deputy press secretary. "If you start going into those contracts and if you expose mortgages to that kind of risk, it has upward pressure on mortgage rates . . . and that's the last thing we need right now."

Home prices around the country have plummeted while the number of foreclosures has soared. One of every 10 homeowners now owes more on his home than it is worth. For many of these families, it is cheaper to walk away than to pay off the debt. Others are seeking help as they struggle with devastating increases in monthly payments on their adjustable-rate mortgages.

Charmaine Perryman, 47, came home to an eviction notice taped to her front door in Dunellen, N.J., last fall. "It was like somebody flushed the toilet, everything went out of my life," the single mother said. "I thought, 'Now we're going to be homeless.' "

Perryman had an adjustable-rate mortgage that had reset twice since 2003, rising from 7.5 percent to 11 percent. After she lost her job as a child-care provider, she could not make the $2,000 monthly payments on her $206,000 loan. Perryman was rescued by a church-based community development organization, which is buying her home from the bank. But the trauma was intense, she said.

The crisis represents a major threat to the economy and is hurting even homeowners with good credit.

Timothy MacKinnon, 32, a policy researcher from Highland Park, N.J., bought a $330,000 home last July with a conventional 30-year fixed mortgage. The value of his house has declined at least 10 percent since then.

He blames people who took loans to buy homes beyond their means and drove up real estate prices, only to default and pull home values back down.

"There's no good way to address this," he said. "I don't want to bail out bad behavior. . . . On the other hand, you can't let people lose their homes and put them on the street."

Staff writer Neil Irwin contributed to this report.