From Wall Street to Capitol Hill, calls are growing for the government to get into the mortgage business as the only way out of the housing crisis roiling the economy and the financial markets.
Proposals to shore up tottering home loans with taxpayer money are gaining traction in Congress and moving to the forefront of presidential politics.
Federal Reserve Chairman Ben S. Bernanke has also called on the lenders themselves to reduce the amount of principal that troubled homeowners owe on their loans.
The Fed has recently taken a series of aggressive steps to assist financial companies staggered by the credit crunch -- including providing a $30-billion short-term loan to JPMorgan Chase & Co. to facilitate its purchase of struggling Bear Stearns Cos.
Democratic contender Sen. Hillary Rodham Clinton cited that action this week in calling for a new initiative to provide $30 billion to help homeowners.
"If we can extend a $30-billion lifeline to avoid a crisis for Wall Street banks, we should extend at least $30 billion in immediate assistance to at-risk communities and families facing foreclosure," Clinton's campaign said in a statement.
But while the Fed can help lenders and the investment industry, it has little authority to help individual borrowers or to force their lenders to modify repayment terms so that strapped borrowers can stay in their homes. That is putting pressure on Congress to step into the breach.
"It does seem increasingly likely that we're headed toward a compromise on taxpayer assistance to prevent a greater number of foreclosures," said Stuart G. Hoffman, chief economist at PNC Financial Services Group.
Thus far the Bush administration has resisted anything that resembles a taxpayer- financed homeowner bailout. Instead, it has placed its faith into several programs that encourage lenders and distressed homeowners to work things out voluntarily.
And Treasury Secretary Henry M. Paulson Jr., former chief executive of investment bank Goldman, Sachs & Co., has said he believes the housing bubble should be allowed to work itself out naturally.
Critics say that's tantamount to bailing out the big players while throwing the little guys to the wolves, and that a more evenhanded approach will make any government action more broadly palatable.
"Some say, let market discipline rule," said Jared Bernstein, an economist at the liberal Economic Policy Institute in Washington. "But some banks are too big to fail, and some homeowners don't deserve to lose their shirts."
