The chairman of the House housing subcommittee said this week that he believes federal legislation is needed to help prevent borrowers from losing out on low-rate mortgages because their commitments expire before the loan is closed.

Thousands of home buyers and refinancers have been hit by this problem this spring and summer after plunging interest rates touched off an avalanche of home buying and refinancing.

"Lenders literally have borrowers at their mercy," said Henry B. Gonzalez (D-Tex.), chairman of the housing subcommittee of the House Banking Committee. "Ultimately, we will have to legislate in the area" of loan commitments.

"What form the legislation will take is unknown," Gonzalez said. He acknowledged that any future congressional action will not help home buyers and refinancers currently in jeopardy of losing out on a lower quoted rate, or those who already have watched their low rate slip away because of delays in the mortgage industry.

"Unfortunately, the tradition is that the best help Congress can give takes so long to be enacted ," Gonzalez said, adding that he intends to ask the subcommittee members to come up with some legislative ideas to alleviate the problem.

The subcommittee chairman's remarks came Wednesday after his panel had finished taking testimony from representatives of the mortgage industry at the first formal hearing on the issue of expired loan commitments.

Gonzalez said he recognized that many lenders have taken steps to alleviate the loan commitment situation, but added "that still doesn't answer the main needs" of borrowers.

The problem arose about two months ago when interest levels, which had dipped to below 10 percent during March and April, began to rise. Compounding the problem was a glut of mortgage applications made by home buyers and refinancers eager to take advantage of the new loan rates.

As a result, the lending industry was unable to handle the mortgage rush, and loan processing time, which generally takes about 30 days, doubled and tripled.

Despite the industrywide delays, lenders generally have refused to extend rates on loan applications not completed within the normal 60-day lock-in period.

One Washington-area borrower, who had been quoted a mortgage rate of 9 1/2 percent in mid-March, was told by his lender in mid-May that it was unable to process his loan within 60 days, and that since he had applied, mortgage levels had jumped a full percentage point. Such a rise in interest levels will now cost the borrower thousands of dollars in additional loan payments over the life of the loan, according to the frustrated homeowner, who said he would have lost his new home had he not closed at the higher rate.

Such moves by lenders have created a storm of protest from angry consumers, who have charged that lenders have been intentionally delaying mortgage processing time in order to close loans at higher interest levels and increased discount points. Various state agencies, as well as industry trade groups and congressional offices have received calls from upset borrowers pleading for action on the matter.

This week's subcommittee hearing occurred as a direct result of complaints from constituents, according to a subcommittee staff member, who said the panel also might hold hearings next month with consumers testifying on the loan commitment problem.

But the lending industry has maintained throughout the lock-in controversy that mortgage companies are not to blame for the lost loan commitments.

"There is no historical precedent for the current mortgage volume," John M. Teutsch, vice president of the Mortgage Bankers Association, told the subcommittee. " Lenders were not willfully misleading their customers when they quoted rates for 60-day periods, but rather were just as surprised as consumers were by the onslaught of activity and the resulting delays. . . . "

Teutsch, as well as other industry leaders at the hearing, said the majority of the mortgage delays rest not with lenders, but with appraisal companies, credit reporting firms, and with borrowers themselves who applied with more than one mortgage lender in hopes of obtaining the lowest rate, thereby further taxing the system.

Echoing the views of other industry witnesses, Teutsch added that the majority of lenders are doing their best to complete loan applications before commitments expire.

"Consumers are holding lenders accountable for aspects of the entire loan process over which the lender has no real control," he added.

Teutsch also claimed that the issue of expiring loan commitments "should be viewed as a temporary, unforeseeable problem that is now being adequately addressed."

With industry economists claiming that interest rates could fall below 10 percent before the summer ends, the problem of borrowers losing out on loan commitments could be abated, although the relief could be temporary if rates go back up -- once again prompting borrowers to scramble to lock in lower rates.

Anne B. Pringle, who testified for the National Council of Savings Institutions, said that while she is concerned about "the potential damage to our reputation" because of the loan commitment controversy, the problem has been "beyond our control."

Kent Colton, executive vice president of the National Association of Home Builders, said that although he understands the problems facing lenders, "we strongly feel that once a commitment is made by a lender to a buyer, such commitments should be met."

Brian Sharry, a former loan originator for a Massachusetts lending company, said the situation of lost loan commitments is not a new phenomenon. Sharry told the subcommittee that he was fired two years ago when he complained about his company's practice of not honoring mortgage lock-ins.

He said, "It's very easy" for lenders to intentionally delay in processing a loan in order to push the application process beyond a commitment period.

Sharry said the practice of stalling loan applications "became so blatant and frequent" at his former firm "that it became common knowledge throughout the company.

"This type of thing is going to happen again," he said.