WASHINGTON - The government would give emergency loans to about 1 million troubled borrowers under a new housing assistance plan developed by a federal bank regulator.

Sheila Bair, chairman of the Federal Deposit Insurance Corp., wants the government to make loans to borrowers with mortgages they cannot afford, particularly those buyers who had high levels of debt when they originally took out their home loans.

Banks and other mortgage investors would choose whether to participate, but the FDIC says they would benefit because homeowners would be less likely to default in the long run.

Bair has been a vocal and influential force in Washington's response to the housing crisis. Last December, Treasury Secretary Henry Paulson adopted an idea she had proposed several months earlier: a five-year interest rate freeze for some borrowers.

Under the new FDIC plan, a government loan would allow borrowers to pay down up to 20 percent of their outstanding principal balance, reducing their obligation to their lender and, in some cases, staving off foreclosure.

In exchange for the federal loan, banks and other mortgage investors would restructure the remaining mortgage into fixed-rate, 30-year loans with interest rates capped at national average rates.

The Treasury Department would sell $50 billion in debt to fund the plan. Payment of the government's loan would be delayed for five years.

The FDIC's proposal comes amid more evidence that the housing market's decline is accelerating.

On Tuesday, the Standard & Poor's/Case-Shiller home price index of 20 major U.S. cities fell by 12.7 percent in February versus last year, the largest decline since its inception in 2001.

Moody's Economy.com estimates that with prices declining rapidly in much of the country, nearly 9 million homeowners have mortgages equal to or greater than their home's value.

That "mismatch between high mortgage debt and declining home values" is one the FDIC's plan - unlike other federal proposals - seeks to correct, said mortgage industry consultant Howard Glaser.

Bair unveiled the proposal, which needs approval by Congress, in an opinion piece in Wednesday's Financial Times.

Democrats are pushing a separate measure, sponsored by Rep. Barney Frank, D-Mass., Financial Services Committee chairman. It would allow the FHA to take on up to $300 billion in refinanced loans for struggling homeowners. The FDIC said its proposal could complement that effort.