WASHINGTON (Reuters) - The top two members of the U.S. Senate Banking Committee are close to a deal that would create a $300 billion dollar housing rescue fund and a new regulator for the nation's largest mortgage finance companies, sources close to the negotiations said on Thursday.

The panel's Democratic chairman, Sen. Christopher Dodd, and top Republican, Sen. Richard Shelby, postponed a public meeting on the legislation during the morning to continue negotiations that sources close to the talks said could still unravel.

That committee meeting to work on the bill and possibly hold a vote was reset for 1500ET (1900 GMT).

Industry lobbyists said the two lawmakers have agreed to language that would create a new regulator for Fannie Mae and Freddie Mac, but had not agreed on a funding mechanism for the proposed $300 billion fund.

The Congressional Budget Office has said that plan would cost up to $2.7 billion to expand the Federal Housing Administration so it can help arrange lower-cost refinancing for as many as 500,000 home loans in distress.

Shelby has insisted taxpayer money not be used to finance the program. Lawmakers on Thursday were discussing a plan to have Fannie and Freddie backstop the fund, sources said.

Since last spring, the nation's mortgage market has been rattled by sinking home values that have erased billions of dollars of investor wealth. An estimated two million foreclosures are forecast for this year.

In March, the Federal Reserve put billions of dollars on the line to facilitate the takeover of Wall Street investment firm Bear Stearns Cos Inc, which was near collapse. Democrats have criticized policymakers for being too willing to bailout investors and reluctant to aid struggling homeowners.

The Bush administration has threatened to veto the House legislation, which it has said would use taxpayer money to bail out lenders and speculators.

Last week, the House of Representatives approved its own version of legislation to set up the $300 billion fund, with billions more in homeowner aid to stabilize the market.

Industry sources close to the negotiations over the bill said staffers for Dodd and Shelby had worked into the early morning hours to try to reach a deal, but the sources cautioned that the effort could still fall through.

House Financial Services Committee Chairman Barney Frank on Thursday said there was a chance for a bipartisan deal on a housing market rescue package.

"I wouldn't say I was optimistic, but I think it has a reasonable chance," said the Massachusetts Democrat, whose committee approved the House version of the bill.

(Reporting by Patrick Rucker, Kevin Drawbaugh and Tim Ahmann. Editing by Richard Satran)

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