The first of a raft of legislation that may save cash-strapped American homeowners from losing their houses will be debated by Congress tomorrow.

The debate will centre around legislation that sets out a series of tough controls on how the $350 billion left in America's $700 billion Troubled Asset Recovery Programme (Tarp) will be used.

On Monday President-elect Barack Obama said that he would ask Congress to release the second half of the Tarp cash. The money is vital to the new administration's wider economic recovery package, which is expected to be announced this week.

Much of the first half of the money was used by President George W Bush and his Treasury Secretary Hank Paulson to buy shares in banks on the brink of collapse because of losses on risky credit assets.

But Americans have been infuriated by the banks' refusal to account for the $350 billion that they have so far received from the Tarp, and the fact that the huge cash injection has done little to ease conditions for borrowers.

Tomorrow's legislation was introduced by Barney Frank, the Massachusetts Democrat who chairs an influential parliamentary financial services committee.

Congressman Frank wants at least $40 billion and as much as $100 million of the $350 billion cash pool to be set aside to help people about to lose their homes because they cannot meet their mortgage repayments.

The lawmaker has a number of ideas on how the money could be used to help homeowners.

For example, Fannie Mae and Freddie Mac, the mortgage guarantors controlled by the Government, currently have a moratorium on foreclosures until the end of this month. The Tarp money could be used to extend the foreclosure freeze to give homeowners a chance to catch up on repayments.

The money could also help fund a plan by Sheila Bair, the chairman of the Federal Deposit Insurance Corporation, which protects consumers against bust banks. Ms Bair wants mortgage repayments for people more than two months in arrears to be cut and mortgage terms extended. In return, the Government would share up to half the losses if the borrower ended up defaulting anyway.

Congressman Frank's legislation is one of a number of moves to relieve the pressure on US homeowners. Senator Dick Durbin has introduced a bill that, if passed, will allow bankruptcy court judges to alter repayment terms on primary mortgages.

At present, the judges can make what are called "cramdowns" on other types of loans, including mortgages on second homes, but cannot adjust the primary mortgage repayments of people about to go bankrupt.

An estimated 8.1 million American homeowners are currently at risk of foreclosure.

Although most banks have fought against cramdowns, Citigroup last week agreed to co-operate with Senator Durbin's legislation, raising hopes that other lenders will follow.

The legislation is likely to be included in some form in the President-elect's economic recovery package.

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