By Benton Ives, CQ Staff

Lawmakers are eager to help struggling homeowners as the real estate crisis deepens, but more immediate aid could come from a Bush administration effort to help subprime borrowers stay in their homes.

Congress has been considering proposals aimed both at providing relief and at avoiding future crises, though time is running short for action this year.

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The administration, meanwhile, says it is close to a deal with major lenders to help subprime borrowers whose mortgage costs skyrocketed when adjustable rate loans reset to higher interest rates.

Millions of subprime borrowers are having trouble refinancing those loans. Many face the possibility of foreclosure and many more will see their initially low-rate loans reset next year.

Faced with continuing grim news on the housing front, Treasury Secretary Henry M. Paulson Jr. is pushing a broad deal among lenders, regulators, borrowers and investors that would freeze some subprime loans at current rates, rather than allowing them to reset. The moratorium reportedly would last for five to seven years, though no deal has been finalized.

“We are working aggressively and quickly, utilizing available tools and creating new ones, to help financially responsible but struggling homeowners,” Paulson said Monday. The secretary is also pushing lenders to modify loans on a borrower-by-borrower basis to help stave off foreclosures.

Barney Frank , D-Mass., chairman of the House Financial Services Committee, pushed a broad mortgage bill (HR 3915) through the chamber last month.

“We in the House have already taken several steps to facilitate this process,” Frank said in a statement late last week. “If additional legislative action is necessary, we stand ready to work with the Secretary as this process moves forward.”

Senate Banking Chairman Christopher J. Dodd , D-Conn., expressed criticism.

“The administration has repeatedly failed to use the tools at its disposal to protect homebuyers from abusive lending,” Dodd said in a statement. “The administration has been late to recognize the severity of the problem and slow to act.”

Dodd plans to introduce an overhaul of the mortgage industry, aimed at ending some of the practices that put subprime borrowers — those with spotty credit histories — in homes they ultimately could not afford.

He has said his bill would set tough standards against “abusive practices” such as prepayment penalties for paying off a loan early — which can make refinancing difficult — and steering borrowers into more expensive loans.

Dodd initially said he would wait for the Federal Reserve to issue regulations covering the subprime sector, but he now plans to press ahead.

Industry sources say Dodd is likely to introduce his bill in the next two weeks. He has said he hopes to pass it early next year.

The Fed, meanwhile, says new regulations will be made public this month. Officials have suggested the rules will seek to limit prepayment penalties, lending when borrowers present little evidence of financial resources and loans to those who have little chance of making the payments.

The House mortgage overhaul bill would bring mortgage brokers — now regulated by states — under a nationwide licensing registry, establish minimum standards for home loans and expand some limits on high-cost mortgages. It also would prohibit brokers from steering consumers into mortgages they are unlikely to be able to repay.

Frank is planning a hearing this week to discuss the need for more loan modifications, as well as potential changes to his overhaul bill.

Bankruptcy Help

Meanwhile, Majority Whip Richard J. Durbin , D-Ill., will chair a Senate Judiciary Committee hearing Wednesday on how Congress can help struggling borrowers keep their homes.

One focus will be a Durbin bill (S 2136) which would allow judges to modify the terms of home mortgages during bankruptcy, a practice prohibited under current law.

According to the Center for Responsible Lending, this change in the bankruptcy code could allow as many as 600,000 people to stay in their homes over the next two years by giving them flexibility to restructure mortgage terms.

The lending industry vehemently opposes the change, arguing that costs would increase for all borrowers to offset the risks that a mortgage loan could be modified at some future date.

The House Judiciary Committee on Nov. 7 postponed a scheduled markup of a bill (HR 3609) that would make similar changes, after a compromise to win some Republican support fell through.

Finally, lawmakers could move on legislation to overhaul the Federal Housing Administration. On Sept. 18, the House passed an FHA bill (HR 1852) intended to stem mortgage foreclosures and prevent homebuyers from agreeing to risky home loans.

Efforts to move a similar bill (S 2338) in the Senate have so far been stymied.

On Monday, Paulson said overhauling the FHA could help some 200,000 families refinance into FHA-insured loans.