WASHINGTON (Reuters) - Key US senators have reached a deal to expand the nation's largest federal homeownership program in a move that could help struggling subprime borrowers avoid foreclosure, legislative and industry sources said.

If the deal holds, underwriting standards at the Federal Housing Administration will be loosened so that the program can help 200,000 troubled borrowers save their homes, according to the overseers of the program.

In the deal, lawmakers agreed to limit debate on the FHA reform package and so allow the full Senate to vote on it, several senate staff sources said.

Because President Bush has called for swift passage of the bill and the US House of Representatives has already endorsed its version of the reform, the measure is expected to easily pass the full Senate.

Senator Tom Coburn, a Republican from Oklahoma, had in recent days objected to some provisions of the legislation and put the brakes on passage.

Coburn and Senator Charles Schumer, a New York Democrat, discussed those concerns Wednesday and agreed to a limited debate and vote on the FHA package, senate aides said Thursday.

An industry source confirmed that lawmakers are close to a debate and vote on the Senate floor.

The most important single change will be to raise the size of the loans eligible for the mortgage insurance so that the program can help borrowers in high-cost areas, said FHA chief Brian Montgomery.

"Until we get a legislative fix, it is hard for us to help families in states like California," he said.

As envisioned, the FHA reform legislation would raise the current loan limit from $362,000 to at least $417,000, which is the same cap that binds mortgage finance companies Fannie Mae and Freddie Mac.

The FHA was conceived in 1934 during the Great Depression to guarantee the home loan payments of low-income and high-risk borrowers. As millions of Americans have faced climbing mortgage payments in recent months, policy-makers have said the program could be retooled to save many of those borrowers from foreclosure.

During the recent housing boom, many borrowers who would have been eligible for FHA loans turned to the quick and easy terms of the subprime market.

Between 1996 and the end of last year, the FHA's share of new mortgages slipped from 9.1 percent to just 1.8 percent as the subprime mortgage market grew, according to the trade publication Inside Mortgage Finance.

Among other things, the bill passed by the Senate Banking Committee insists FHA borrowers offer a downpayment of at least 1.5 percent of the home value. (Reporting by Patrick Rucker; Editing by Andrea Ricci)