The Miller-McCarthy bill would create a "secondary market facility" for residential mortgages, in essence a federal utility that would buy home loans, pool them into bonds, and insure their principal and interest payments. The utility would be governed by a presidentially appointed board.

Income from the bond sales would finance the company's operation, according to a draft copy of the legislation.

"You're starting to see Republicans and Democrats taking a longer look at this, taking a step out of this knee-jerk orthodoxy," said Barry Zigas, director of housing policy for the Consumer Federation of America. "They're in agreement that some form of backstop of mortgage-backed securities is necessary."

The Miller-McCarthy proposal follows a plan introduced in May by Representatives John Campbell, a California Republican, and Michigan Democrat Gary Peters. That bill would replace the government's guarantee behind housing bonds with a system of privately run associations that would bear most of the risk.

The Campbell-Peters bill was modeled on proposals from the Housing Policy Council, a Washington trade group that represents big financial companies, private mortgage insurers, lenders and loan servicers, including JPMorgan Chase & Co., and the Mortgage Bankers Association, whose members include small lenders.

Guarantees

Smaller lenders oppose the approach, saying they fear that they could be squeezed by larger competitors who might end up being the ones selling the guarantees now sold by Fannie Mae and Freddie Mac.

"Under the Miller bill, the big banks don't get to play. Under the Campbell bill they might," said Rob Zimmer, a lobbyist for Community Mortgage Lenders of America, which works for small lenders.

At this stage in the legislative process, both proposals are little more than stakes in the ground. Neither will get a hearing before the Financial Services Committee, said Representative Scott Garrett of New Jersey, who is leading Republican efforts to eliminate Fannie Mae and Freddie Mac.

"The central tenet of the Republican philosophy is no more bailouts," Garrett said. "We will only be considering legislation that abides by that principle."