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Home buyers could save up to $80 a month on their mortgages after the Federal Government announced a $4 billion plan to boost competition in the lending market, but it could take months for the benefits to flow through to household budgets.

As prospects for quick action in the United States to tackle the worsening global financial crisis dimmed, a Treasury analysis revealed the extent to which competition in the Australian lending market has been eroded by the meltdown.

Non-bank lenders' share of new owner-occupied loans has shrivelled from more than 20 per cent in July last year to less than 10 per cent currently, after the crisis all but choked off the supply of cash available to smaller lenders.

Treasurer Wayne Swan has repeatedly urged disgruntled home buyers to "vote with their feet" and switch to cheaper loans, but the growing dominance of the big banks means there is now little scope to do this. Residential mortgage-backed securities - the key source of funds for the non-bank sector - are now being issued at a rate of about $830 million a month, compared with $6 billion a month before the crisis.

The analysis showed if the lending market were to return to normal, home buyers would be able to access interest rates about half a percentage point lower, saving $80 a month on an average mortgage.

Mr Swan said the plan to use $4 billion from the budget surplus to buy AAA-rated products from the non-bank sector to increase cash available for lending would significantly boost competition. He said Treasury officials would start talking to the lending industry on Monday morning to get the plan running as quickly as possible.

The comments follow concern that taxpayers' money could be used to finance bad debt through the plan. But Mr Swan said Treasury would only be investing in safe AAA-rated loans, rather than the so-called low-documentation loans responsible for high default rates in areas such as western Sydney.

"This money won't be made available for low-doc loans," he said yesterday. "This money will be invested in AAA-rated residential mortgage-backed securities. This is an investment which will bring a return to the taxpayer."

Wizard Home Loans founder Mark Bouris said the injection of cash would allow the non-bank sector to compete with the banks again, although any savings to home buyers could take time to flow through.

"You won't see a saving overnight but the long-term saving of this is it will maintain the non-bank sector competing with the bank sector, which means prices won't get out of control," Mr Bouris said.

The idea for Treasury to become an investor in the mortgage sector to provide extra cash for lending has been linked to a paper released in March by Joshua Gans, professor of economics at Melbourne Business School, and Christopher Joye, the head of Rismark International.

Mr Joye, described as a protege of Opposition Leader Malcolm Turnbull, said the non-bank lending industry was effectively dead because of the lack of funds.

"I don't think this is going to remedy all of the problems associated with the securitisation market, but it is certainly a step in the right direction," Mr Joye said.

In the US, the fate of the $US700 billion ($843 billion) bail-out of America's teetering banking industry hung in the balance after intense political wrangling, culminating with the first face-to-face debate between presidential candidates John McCain and Barack Obama.

Hopes of a swift deal on a financial rescue package waned as Republicans backed away from an unprecedented state-funded intervention in the economy, fearing that the steep cost to taxpayers risked a voter backlash.

Shares on Wall Street fell sharply despite a plea by US President George Bush, who promised that Congress would eventually agree to a deal.

"There are disagreements over aspects of the rescue plan, but there is no disagreement that something substantial must be done,"

Mr Bush said. "We are going to get a package passed. We will rise to the occasion."