March 13 (Bloomberg) -- House Financial Services Committee Chairman Barney Frank and Senate Banking Committee Chairman Christopher Dodd, saying the U.S. is in a recession, unveiled plans to increase government efforts to prevent foreclosures amid the worst housing slump in a quarter century.

Dodd and Frank announced plans to let the Federal Housing Administration insure refinanced mortgages after lenders reduce principal to help homeowners. The proposals unveiled today at a Washington news conference increase pressure on the White House to do more to aid borrowers and stabilize markets.

``What we're trying to do here, in addition to providing assistance to the homeowner, is to create a floor so that we bring this to a halt and we can start again freeing up capital to move,'' Dodd, a Connecticut Democrat, said today.

The two lawmakers are leading congressional efforts to tackle the surge in foreclosures, which jumped 60 percent last month after reaching record levels in the fourth quarter of 2007. Their proposal goes beyond the Bush administration's industry-led approach of urging voluntary modifications by lenders and mortgage-servicing companies to help borrowers who can't make their monthly payments.

Robert Steel, U.S. Treasury's undersecretary for domestic finance, declined to rule out Frank's plan.

``I haven't seen the details of Chairman Frank's proposal, but we're focused on homeowners,'' he said in an interview. His remark seemed to signal a more conciliatory stance compared with Treasury Secretary Henry Paulson's March 5 remark that any proposal using taxpayer money was a ``non-starter.''

$300 Billion in Guarantees

Frank's plan would have FHA provide as much as $300 billion in guarantees to help refinance loans for borrowers at risk of foreclosure. Participating lenders or mortgage holders would reduce principal in exchange for a payment from the proceeds of a new FHA loan. The plan could help 1 million to 2 million borrowers, according to a draft of the bill.

At today's news conference, Frank rejected criticism of his FHA plan as a taxpayer-funded bailout.

``We're going to try to make this as least likely a loser for the government as possible,'' he said.

The proposal also includes $10 billion in loans and grants for states to buy and rehabilitate foreclosed homes.

Dodd's plan would create an FHA program to refinance troubled mortgages with government insurance, with investors and lenders taking ``significant losses,'' according to a summary of the bill his office released today.

Both plans would be voluntary for the industry, according to the lawmakers. The incentives for companies to participate include the possibility of avoiding the greater costs associated with foreclosures, they said.

`Increasing Tools'

Dodd and Frank ``are increasing the number of tools that borrowers and lenders have to get through this market instability,'' said Francis Creighton, vice president of legislative affairs at the Mortgage Bankers Association, a Washington-based industry group.

Both plans show ``they are trying to come up with solutions,'' said William O'Donnell, head of U.S. government bond strategy at UBS Securities LLC in Stamford, Connecticut.

``They've seen enough of this recession and credit crunch to know they don't want to see it anymore,'' O'Donnell said.

Republican Criticism

U.S. Representative Tom Price, a Georgia Republican and a member of Frank's House Financial Services Committee, criticized the proposals, saying they would reduce consumer credit and increase market risk.

``It isn't any surprise to me that they would believe that greater governmental intervention and regulation will solve this problem,'' Price said today in a telephone interview. ``It completely distorts any market base for mortgages for at least the short term.''

Price supports tax credits for buyers of foreclosed homes.

Dodd said he will present his proposal when Congress returns from a two-week recess next month.

``This is the worst housing crisis in our lifetime,'' he said. ``We're in a recession. We have to be moving more aggressively.''

To contact the reporter on this story: Alison Vekshin in Washington at avekshin@bloomberg.net.

Last Updated: March 13, 2008 18:27 EDT