The Bush administration is weighing a roughly $40 billion proposal to help forestall housing foreclosures, one of a series of ideas under consideration to address the root causes of the financial crisis, the Wall Street Journal reported.

Federal Deposit Insurance Corp Chairman Sheila Bair is expected to suggest at a Senate Banking Committee hearing on Thursday the government give banks a financial incentive to turn troubled loans into more-affordable mortgages, the paper said citing a person familiar with her testimony.

Under the proposal, the government would share in any future losses on the new loans with lenders, the paper said in its online edition.

The White House could not be immediately reached for comment by Reuters.

By 1:25 a.m. EDT, Japan's Nikkei average aggressively pared losses to be down 2.7 percent, helped by the WSJ report. U.S. stock index futures wiped out losses.

The U.S. Treasury Department, under pressure to act more aggressively to help homeowners, is discussing this option, the WSJ said citing people familiar with the matter.

It is also moving ahead with separate plans to use part of its $700 billion financial rescue fund to directly buy and renegotiate mortgages, according to the paper.

Treasury officials are slated to privately brief members of the House Financial Services Committee on their plans to assist homeowners, among other matters, on Thursday afternoon, according to the paper.

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