Senators on both sides of the aisle are urging that more help be included in the stimulus package to tackle what many view to be the root cause of the weakened U.S. economy: the housing market.

They argue that not including much in the recovery legislation to address the foreclosure crisis and to kick-start housing market activity is a failing on the part of congressional Democrats and President Barack Obama's administration.

We need to go straight at the housing issue because that's the underlying cause of the recent downturn. Republicans think we need to fix this problem before we do anything else," said Senate Minority Leader Mitch McConnell, R-Ky.

Democrats counter that the stimulus plan is aimed at providing an immediate shot in the arm to the economy, and that fixing the problems besetting the housing market will require a several-pronged effort by Congress and the administration.

They point to a commitment by President Obama to use up to $100 billion of the second tranche of $350 billion released to the Treasury under the financial rescue package to tackle the record numbers of foreclosures.

And they said that House Financial Services Chairman Barney Frank, D-Mass., is working with Treasury Secretary Timothy Geithner on a comprehensive housing package, details of which could be released as soon as next week.

"Just because there isn't enough housing articles in this legislation to please some people doesn't mean it won't get done another way," Senate Majority Leader Harry Reid said at a press conference Thursday.

Republican lawmakers are pulling together a package of housing measures they hope to introduce as an amendment to the recovery package on the floor of the Senate next week.

Without a more significant housing element and other changes, Senate Republicans say they are unlikely to vote for the stimulus package next week.

The highlight of that package would be a 4% discounted mortgage rate subsidized by the federal government available to prospective homebuyers and owners looking to refinance.

The rate would be available for a limited time, and would be locked in for 30 years.

A spokeswoman for Senate Minority Leader McConnell said details such as whether the federal government would reimburse banks for the difference between commercial mortgage rates and the subsidized rate, or if qualified borrowers would receive a tax rebate for the difference, were still being finalized.

The spokeswoman, Jennifer Morris, said that the discounted rate would save the average borrower $5,600 a year.

"We have at least a trillion dollars in losses left in our banking system," said Sen. Bob Corker, R-Tenn. "To not be using some of these monies to really focus on housing and credit to me is a tremendous missed opportunity."

Homebuyers Credit

The primary housing-related component of the stimulus package is language waiving the obligation upon people to pay back a $7,500 first-time homebuyers credit.

The credit was created in housing legislation last year, structured as a no-interest loan that would have to be paid back over a 15 year period. The House version of the stimulus bill would waive the repayment on homes purchased from Jan. 1 through the end June, while the Senate bill would do so through Aug. 30.

Sen. Johnny Isakson, R-Ga., has proposed a larger tax credit of either $15,000, or 10%, of the purchase price, whichever is smaller. It would be available until the end of 2009 and anyone buying a primary residence could qualify for it.

Under Isakon's plan, individuals would only be able to claim a credit up to the amount they pay in federal income tax.

The National Association of Realtors and the home builders' lobby are also pushing Congress to enlarge and revamp the home buyer credit.

The realtors want Congress to extend it through the end of the year and make it available to all home buyers. The home builders are pushing to boost the size of the credit to between $10,000 and $22,000, depending on local house prices.

It is not just Republicans who are hoping to include measures to tackle the housing crisis in the legislation. Sen. Christopher Dodd, D-Ct., who has been at the forefront of Democrats' efforts to tackle the financial meltdown, has been lobbying for weeks for a foreclosure mitigation measure to be included in the bill.

Dodd, the chairman of the Senate Banking Committee, and Sen. Richard Durbin, D-Ill., the second-ranking Democrat in the Senate, have been pushing the foreclosure measure aggressively.

The measure would give bankruptcy judges flexibility to restructure the terms of people's loans who are going through a bankruptcy proceeding to allow them keep their homes.

A similar bill was approved by the House Judiciary Committee this week.

"Housing is a tremendous (economic) accelerator," Dodd said on Thursday. "If you can generate activity in housing, the benefits of that are phenomenal in terms of the credit markets."

Dodd said he was evaluating all the proposals that were being floated, including those by Republicans.

Even though the House approved the stimulus legislation this week, and the Senate is due to begin debating it from next week, The realtors and home builders' lobby are continuing to push hard for the inclusion of greater housing measures in the economic recovery bill.

In a letter sent to all 100 senators Friday, the realtors expressed disappointment that the draft Senate bill won't raise the limits on the size of mortgages Fannie Mae (FNM) and Freddie Mac (FRE) can buy - and that the Federal Housing Administration can insure - in some costly housing markets.

The House-passed stimulus package would restore the limits to nearly $730,000, the level that was in force during most of 2008. On Jan. 1, they fell back to $625,500.

The drop in the high-cost limit has pushed up rates on larger mortgages that no longer qualify for purchase by Fannie or Freddie. Interest rates on "conforming" loans - those that can be sold to Fannie or Freddie - are much lower than on larger loans, known as "jumbos."

The realtors contend the situation is causing a drag on the economy. "Without affordable financing, families are unable to purchase or refinance homes, which will continue to prolong our housing crisis," NAR President Charles McMillan said in the letter.

-By Corey Boles, Dow Jones Newswires; 202-862-6601; corey.boles@dowjones.com

-By Jessica Holzer, Michael R. Crittenden and Martin Vaughan contributed to this article.

Click here to go to Dow Jones NewsPlus, a web front page of today's most important business and market news, analysis and commentary. You can use this link on the day this article is published and the following day.