Democrats, Bush Square Off Over Housing Relief

Lenders would take a big hit under the legislation. The proposal would limit their payoff to 85 percent of the home's appraised value. At the same time, borrowers would help fund the program by paying FHA mortgage insurance.

Frank has scheduled two days of hearings on the proposal in the House. In the Senate, aides to Dodd said the measure might be attached to a larger "housing stimulus" package that Reid hopes to bring to a vote early this spring.

Under that larger measure, bankruptcy judges would be permitted to alter the terms of mortgages for primary residences by lowering the interest rate, extending the life of the loan or forgiving part of the loan's principal. Advocacy groups have said the legislation would help hundreds of thousands of borrowers keep their homes. But it was blocked in the Senate earlier this year; the president and several bank lobbies opposed it because they said it would lead to higher mortgage rates.

Another proposal pending in Congress would overhaul the FHA. The House and Senate have passed different versions of the plan, which would reduce the down payment requirements for FHA-backed loans. The Senate bill would lower the limit from 3 percent to 1.5 percent, while the House would eliminate the need for a down payment.

The legislation would also require lenders to give homeowners more notice before raising their interest rates or putting them into foreclosure.

In addition, the House version of the legislation would insist that states do a thorough job of overseeing mortgage brokers or the Department of Housing and Urban Development would be asked to take over the task.

Regulators are also considering a variety of suggestions offered last week by the President's Working Group on Financial Markets, a high-level advisory panel consisting of the federal government's top financial-market overseers. Mortgage brokers were in part blamed for allowing so many homeowners to purchase loans they could not afford.

The working group recommended that the brokers be subjected to tougher licensing and enforcement standards and that safeguards against mortgage fraud be tightened. The National Association of Mortgage Brokers called the suggestions "flawed" and said that other players in mortgage lending should also be included in any crackdown.

The American Bankers Association supported efforts to rein in mortgage brokers, but worried that the states would not have enough funds to pay for their oversight. Rules are also pending from the Fed and HUD that would require more disclosures by lenders and borrowers before a home can be bought with a mortgage.

Bush's working group called for more transparency in how credit-rating agencies assess the risk of mortgage-backed securities -- a plan the agencies are not resisting. Some of the packaged mortgages that are now expected to go bad were given high ratings when they originated.

Staff writer Renae Merle contributed to this report.