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WASHINGTON (AP) -- Congressional leaders are racing to push through an array of election-year housing measures that already have stirred up much political wrangling and the White House is examining its own plan to further help homeowners caught in the mortgage meltdown.

With foreclosure signs prevalent and a Wall Street rescue reverberating, majority Democrats want the government to step in and back up to $400 billion in troubled loans. The goal is to help strapped borrowers and thaw a credit market plagued by uncertainty about the value of subprime mortgages made to people with spotty credit or low incomes.

As lawmakers return from their two-week spring recess, their leaders are moving fast to increase the political heat on the housing issue. Many Republicans, though, are resisting what they characterize as heavy-handed federal intervention that could leave taxpayers on the hook for a mortgage bailout.

Senate Democrats plan a test vote this coming week on a series of housing proposals. One would let bankruptcy judges reduce the amount owed and interest payments on loans held by distressed borrowers. President Bush and Republicans strongly oppose the idea.

The Senate took up the plan several weeks ago. But the proposal, which also would make grants available to communities with the highest foreclosure rates so they could buy foreclosed properties, fell well short of the 60 votes it would have needed to advance.

Democrats, however, are determined to put Republicans in the position of making tough votes, given the issue's potency for voters.

"Our hope is that when Republican members went back home they said 'Let's do something,"' said Sen. Charles E. Schumer, chairman of the Joint Economic Committee. "We feel the pressure is mounting and we are hopeful that there will be a change of mind in the Republican leadership," said Schumer, D-N.Y.

Bush administration officials have signaled in recent days that they, too, are reviewing a new approach to help homeowners, including people who owe more on their mortgages than their houses are worth. The White House is evaluating the Democratic proposals, but Bush advisers say the administration does not want to reward risky behavior by borrowers, speculators and lenders.

So far, the White House has no timetable for releasing any proposal. Bush is headed to Europe for the NATO summit and will not return until April 6.

In October, the administration helped bring together a private sector group called the HOPE NOW Alliance to streamline the process for refinancing and modifying mortgages. It runs a national hot line to connect struggling homeowners with mortgage counselors. Democrats say that is not enough.

"This is a good start and my administration is committed to building on it," Bush said in his radio address Saturday. "So we're exploring ways this program can help more qualified home buyers. The problems in the housing market are complicated and there is no easy solution. But by supporting responsible homeowners with wise policies, we'll help them weather a difficult period, we will help get our economy back on track."

Democrats plan high-profile hearings scrutinizing the Federal Reserve's recent moves to help Wall Street weather the credit crisis.

The Fed helped broker the 11th-hour sale of a major investment firm, the failing Bear Stearns Cos., to a rival and guaranteed some $30 billion in Bear assets, including questionable mortgage-backed investments. The central bank also allowed investment houses to get emergency loans previously reserved only for commercial banks.

Schumer's committee intends to question Fed Chairman Ben Bernanke on Wednesday. The next day, the Senate Banking, Housing and Urban Affairs Committee has summoned Bernanke, Treasury Secretary Henry Paulson and executives from Bear Stearns and its buyer, JP Morgan Chase & Co.

Democrats will use the test vote and the hearings to pressure Republicans to back their housing initiatives or face charges of hypocrisy for supporting a government rescue for investment giants but not for struggling homeowners.

"If (the Bush administration) can spend all weekend figuring out a way to avoid a problem with Bear Stearns, you can spend a little time to keep people in their homes who were lured into deals ... that were fraudulent and harmful," said Democratic Sen. Christopher Dodd of Connecticut, the banking chairman.

Behind the partisan disputes are several measures that enjoy broad support. They include letting states issue $10 billion in tax-exempt bonds to refinance subprime loans; strengthening loan disclosure rules; and allowing businesses that have suffered losses to reclaim previously paid taxes.

A broader housing overhaul proposed by Dodd and Rep. Barney Frank, chairman of the House Financial Services Committee, faces an uncertain road.

Frank and Dodd want the Federal Housing Administration, the Depression-era agency that insures mortgages, to guarantee $300 billion to $400 billion in refinanced loans to troubled borrowers. Lenders would first have to agree to take a loss on the mortgages; borrowers would have to show they could afford to make payments on the new loans.

The plan would insert the government into the maelstrom of the subprime mortgage mess, with public money at risk should homeowners default. But it would rescue hundreds of thousands of borrowers from foreclosure and insure that lenders get something from their mortgages. That, in turn, could boost investor confidence in the value of mortgage-related investments.

"Some federal money is at risk, but we think we are doing the absolute maximum to protect the government and address the problem," Frank said in an interview. "Unfortunately, the case for doing something gets stronger every day."

Frank said he expects to send the measure through his committee in April. He is optimistic about getting at least some GOP support, especially given the pressures of the political calendar.

"For the Democrats, I don't think you need an election to want to do this, but for the Republicans, it may make a difference, particularly for people from those areas that have been hardest hit," said Frank, who is planning two days of hearings early next month.

Dodd said he wants to add his bill to the housing measure set for a vote Tuesday, but it is up against steep odds.

Bush has been cool to the idea of a big federal housing rescue. "The temptation of Washington is to say that anything short of a massive government intervention in the housing market amounts to inaction," he said recently. "I strongly disagree with that sentiment."

Rep. Tim Walberg, R-Mich., whose state ranks among the top 10 for mortgage foreclosures, according to the research firm RealtyTrac, Inc., said he had high turnout for two foreclosure seminars he held in his district over the break. But he added that Congress should be cautious about federal intervention.

"The bottom line is we don't think the government should get in using taxpayers' dollars to bail a large number of people out for decisions that they made on their own and contracts that they signed," Walberg said.

NEW YORK (Fortune) -- Financial reformers have a chance to give stressed-out markets a desperately needed reality check.

This month's near collapse of Bear Stearns (BSC, Fortune 500) has brought new urgency to the debate about how to shore up the financial sector. Fears that another firm will implode, and the observation that individuals have reaped millions of dollars in pursuit of policies that led their employers to the edge of the abyss, are fueling a drive to strengthen oversight of financial firms.

U.S. Rep. Barney Frank has called for a program of "sensible regulation" that could involve the creation of a systemic risk watchdog. In an opinion piece published Friday in The Wall Street Journal, U.S. Sen. Charles Schumer laid out six points that legislators must consider in undertaking any overhaul.

"We need to rethink the regulatory framework that governs our financial system," Schumer writes. He says it may be time to consider replacing the current alphabet soup of overlapping federal regulatory agencies, such as the Securities and Exchange Commission and the Commodity Futures Trading Commission, with the U.K. model of "a single strong, effective financial regulator, focused on results and not rules, with the power to act."

The government took an important first step this weekend with Saturday's release of the Treasury's Blueprint for Financial Regulatory Reform. Treasury Secretary Henry Paulson, who is due to announce the plan in a speech Monday, says the key to any long-lasting reform is to update a regulatory framework that was largely put in place in response to the Great Depression.

For now, he wants to make sure existing regulators such as the Federal Reserve communicate better with peers such as the SEC in responding to crises. Eventually, he proposes, Congress should create separate agencies that would be in charge of market stability regulation, safety and soundness regulation associated with government guarantees, and business conduct regulation. He stresses that any recommendations are only a starting point for decisions that will be made by legislators.

"This model is intended to begin a discussion about rethinking the current regulatory structure and its goals," the Treasury Department summary of the blueprint says. "It is not intended to be viewed as altering regulatory authorities within the current regulatory framework."

But some observers say any attempt at financial reform, no matter what structure it takes, will work only if it vests the power to act with investors - by helping them to make sense of the complex, hard-to-value companies and securities that are at the root of the past year's tumult. Enhancing transparency won't be easy, but it's the necessary first step to any recovery.

"This is an information crisis," says Joseph Mason, a finance professor at Drexel University in Philadelphia and a former economist at the Office of the Comptroller of the Currency. He says the market's fearful contortions "aren't going to stop till we get the information" about which institutions are facing more losses.

That notion is borne out in the tepid investor response to the Federal Reserve's efforts to ease the credit crunch. Since the mortgage-market meltdown started in earnest last summer, buyers have shunned financial stocks and risky debt. Fears tied to souring mortgage bonds have caused credit markets to seize up, making loans costlier and harder to come by.

In response, the Fed has aggressively slashed interest rates and unveiled several novel programs aimed at preventing market problems from pulling the economy into a recesssion. The Fed's efforts have ranged from the memorably named Term Auction Facility and Term Securities Lending Facility - which have had some success in bringing down interbank lending rates - to this month's sale of cash-strapped Bear Stearns to JPMorgan Chase (JPM, Fortune 500). The central bank has staked hundreds of billions of dollars to these initiatives.

Yet so far there is little sign that the credit crunch is abating. Stock prices have been slipping, and debt investors continue to demand risk-free Treasurys in lieu of other bonds. The unease in the markets has led some observers to criticize Fed chief Ben Bernanke, despite the Fed's aggressive action and Bernanke's willingness to try out new remedies.

"The market is looking for a silver bullet that will solve everything," says Jeff Miller, CEO of investment adviser NewArc Investments in Naperville, Ill. "That's just totally unrealistic."

Still, it's clear that the Fed is helpless to persuade investors to take chances on financial companies when losses have been mounting at a startling rate. Citi (C, Fortune 500), UBS (UBS) and Merrill Lynch (MER, Fortune 500) took almost $50 billion in writedowns on subprime mortgages and collateralized debt obligations in the fourth quarter alone, and there seems to be no end in sight: Wall Street estimates of first-quarter writedowns at Citi range as high as $18 billion.

Though Paulson has applauded the Fed's efforts to contain the financial crisis, he admits they raise thorny questions for Washington. "Recent market turmoil has required the Federal Reserve to adjust some of the mechanisms by which it provides liquidity to the financial system," he said last Wednesday in a speech to the U.S. Chamber of Commerce. "Their creativity in the face of new challenges deserves praise, but the circumstances that led the Fed to modify its lending facilities raises significant policy considerations that need to be addressed." For now, Paulson is pushing for greater transparency when the Fed lends to nonbank institutions, over which it currently has no regulatory authority, and better information sharing among regulators - two suggestions that seem certain to figure in any new policies that come out of Washington.

No matter what structure a new regulatory regime takes, the pain in financial markets is likely to continue for a while. The experience of other economies shows that a debt-fueled expansion can create big problems when growth slows and asset prices stop rising, no matter who's minding the shop. Schumer's model, the U.K. Financial Services Authority, recently issued a report criticizing its own supervision of Northern Rock - a mortgage lender that was nationalized after it collapsed last September in a transatlantic preview of this month's Bear Stearns mess.

Mark Gertler, an economics professor at New York University who has published papers with Bernanke, says the challenge for any regulatory regime is to ensure the soundness of a growing group of financial institutions without crimping innovation. "The problem is that markets have changed over time," says Gertler, with much lending moving off banks' balance sheets to institutions such as brokerages and hedge funds.

In a crisis, Gertler says, "The Fed can't just sit back" and see what happens. But he suggests officials can try to prevent future crises by demanding that firms to hold sufficient capital to protect against losses. When financial firms need to raise new capital, he adds, regulators will want to make sure shareholders bear the brunt of the pain - as they did in the Bear Stearns case.

Similarly, the Fed's decision to act through an intermediary such as JPMorgan shows the government doesn't want to make direct investments in financial firms. "You want the institutions to recapitalize themselves," Gertler says.

As to where new capital might come from, Mason says there are hundreds of billions of dollars waiting on the sidelines at hedge funds, sovereign wealth funds and other sources - but that money will just bide its time on the sidelines till there's a sense that big firms aren't done hatching unhappy surprises.

"Someone's got the losses somewhere," Mason says. But once investors feel secure in assessing where they are, he predicts, "they'll pile into the areas that aren't affected."