Democratic leaders have decided not to include legislation that would allow bankruptcy judges to reduce the principal of a home mortgage in the forthcoming economic stimulus package that will be debated in the House this week.

The decision was made at Friday's White House meeting, according to a Senate aide, with Democratic leaders and President Obama agreeing to remove it from the stimulus bill and place it in another bill that also will be on a fast track, most likely the FY09 omnibus appropriations package.

"The omnibus is one option, but nothing has been decided," the aide said. "We have the full backing and support of the White House and Democratic leadership in both houses. This will pass as part of a larger bill and the president will sign it into law."

The House Judiciary Committee is slated Tuesday to mark up Judiciary Chairman John Conyers' bill to give bankruptcy judges more leeway to modify primary home mortgages, especially by reducing the principal of the loan down to its current market value, commonly referred to as a "cram down." Senate Majority Whip Durbin has a similar bill.

Consumer advocates argue that the "cram down" is the stick needed because lenders have been unwilling to modify loans significantly enough through voluntary workouts to make them affordable for at-risk families.

Lenders argue that the language would result in higher mortgage interest rates because investors would be more fearful to enter the mortgage market if their rate of return could be placed at greater risk.

Placing the Durbin language in the omnibus appropriations bill will likely complicate the plans of opponents who are trying to stop it, given that such measures are difficult to stop because the spending items have the support of almost all lawmakers, with the notable exception of fiscally conservative members of the GOP.

"It would make it harder for us. Not impossible, but harder," one lobbyist said.

The "cram down" bill is expected to be narrowed as it advances. Citigroup Inc. reached a compromise earlier this month with Durbin that only existing mortgages would be eligible for such relief; homeowners would have to contact their lender at least 10 days before filing; and only major violations of the Truth In Lending Act would invalidate creditor claims during a bankruptcy proceeding.

Other concessions being considered include limiting the mortgages to those with variable rates and allowing a "clawback" provision so lenders could recover costs if a homeowner eventually sells the residence for a profit.