The refinancing program now being considered also seeks to include "underwater" borrowers who owe more than their homes are worth, the Journal said.

The proposal would also transfer potentially riskier loans held by private investors to the government-sponsored mortgage entities Fannie Mae and Freddie Mac, the paper said.

Such a move would require congressional authorization to temporarily change the charters of Fannie Mae and Freddie Mac, according to the Journal.

About 22 percent of all homes with a mortgage, or around 10.8 million homes, down from 12.1 million last year, were worth less than the outstanding balance at the end of June, the Journal said, citing data from CoreLogic.

Under the proposal, Fannie and Freddie would be allowed to charge higher rates to borrowers in order to compensate for the risk of guaranteeing refinanced loans that are underwater and more likely to result in default.

Officials at the U.S. Treasury could not be reached for comment by Reuters outside of regular U.S. business hours.

Combined with Fannie Mae and Freddie Mac, which buy loans and repackage them as securities for investors, Washington's footprint in the market has grown to account for nearly nine of every 10 mortgages.

(Reporting by Sakthi Prasad in Bangalore; Editing by Matt Driskill)

• A Permanent Economic Emergency