Sen. Dick Durbin (D-Ill.), a prominent Congressional advocate of mortgage cramdown authority, is considering whether to accept a compromise version of the legislation early next week that would still face stiff opposition from financial institutions and Senate Republicans.

Final details of the proposal are still in flux, according to two people familiar with the matter.  These people say negotiators were settling on the following conditions:

• Cramdown would apply only to loans issued before January 1, 2009
• The loan must be equal to or less than the conforming loan limit (up to $729,750)
• If, through a government program, there is an offer to modify a loan, that mortgage would only qualify for cramdown if the borrower was still at risk of defaulting after the modification. Then, the bankruptcy judge would only have the power to change the interest rate or mortgage terms -- not the principal
• If a judge applies cramdown and the home appreciates and is sold, the lender and the homeowner would split the appreciated profits equally, 50% to each
• The authority sunsets in 2014

The bill would also include a safe legal harbor for servicers who modify loans and a widely supported measure to increase the Federal Deposit Insurance Corp.’s line of credit with the Treasury Department to $500 billion.

A financial industry source says the compromise version was negotiated with Bank of America (BAC) and JP Morgan Chase (JPM), two of the biggest recipients of money from the Troubled Asset Relief Program.  BofA has gotten commitments from the government for $52.5 billion in TARP funds, and JPM has received $25 billion but has said it would like to pay back the money as soon as it’s allowed.

The source says investment management firms and other financial institutions still oppose the measure -- apart from Citigroup (C), whose CEO Vikram Pandit endorsed cramdown after Citi became one of the biggest recipients of government aid (it now has about $50 billion from TARP, and U.S. taxpayers are backstopping about $300 billion of its assets).

A spokesperson for Sen. Durbin says “there is no deal.  Negotiations are ongoing.”