HOUSING - Bush to propose aid to mortgage holders - The plan includes a tax break and letting FHA insure more loans.

The program is the first detailed administration response to the housing-sector woes that have roiled financial markets worldwide since June, amid surging home loan delinquencies.

Included in the plan, according to the official, will be a proposal to expand the Federal Housing Administration's ability to insure loans for people who have fallen behind on their payments and could be helped by refinancing.

The president also wants to raise the limit on the insurance premiums that the FHA can charge home buyers. That could allow the agency to insure a greater number of loans to high-risk borrowers.

In addition, Bush will propose temporarily suspending an Internal Revenue Service rule that makes a homeowner liable for taxes on any amount of mortgage debt that is forgiven by the lender, said the official, who requested anonymity because the president's program hadn't been formally unveiled.

A suspension of the debt-forgiveness tax could help people who are hoping to work out a reduction in their loan balance -- and payments -- as a way of avoiding foreclosure.

It's unclear how many struggling homeowners might be helped by the White House's program, particularly in high-priced housing markets like California. Many people who took out adjustable-rate loans in recent years at low "teaser" rates and now face sharp jumps in their payments, may be unable to afford any new market-rate loan, even with government insurance, experts say.

Still, the housing debacle -- and the prospect of perhaps millions of Americans facing foreclosure -- has become a major political issue in Washington, with many Democrats demanding federal involvement to try to limit the pain.

The turmoil in financial markets this summer has added urgency to the situation. Rising home loan delinquencies have caused investors to flee mortgage-backed bonds, fearing huge losses on those securities.

That has fueled a general aversion to risk-taking that has caused many banks and investors to pull back from lending money, even to higher-quality corporate borrowers.

The Federal Reserve on Aug. 17 took the unusual step of cutting the rate at which it lends to banks. The Fed also encouraged banks to borrow to keep credit flowing in the financial system. But the move has met with limited success, and credit markets around the world remain on edge.