WASHINGTON - The Federal Reserve is finalizing a far-reaching mortgage proposal that would ban certain lending practices and apply to the lightly regulated subprime mortgage specialists that proliferated during the recent housing boom.

The proposal, expected in two weeks, is emerging as the most muscular use of regulatory power at the central bank since Fed Chairman Ben Bernanke took office early last year.

It is expected to target certain prepayment penalties, as well as loans that don't escrow taxes and insurance. The plan also targets low-documentation loans and loans that are made regardless of a borrower's ability to make payments, Fed officials have said.

"These rules would apply to subprime loans offered by any mortgage lender," Bernanke said during congressional testimony last month.

The Fed's unique power in this area, which it has never before used broadly, could affect the outcome of broader mortgage legislation pending in Congress.

Some community groups don't want the Fed to push too hard, arguing that it would deter lawmakers from passing more sweeping reforms to penalize abusive lenders. Many bankers, by contrast, hope the pending Fed rules will deter Congress from acting.

Senate Banking Committee Chairman Christopher Dodd, D-Conn., has said that he will wait to see what the Fed does before deciding whether to pursue a new law.

The Home Ownership and Equity Protection Act of 1994 authorized the Fed to prohibit loan practices that the central bank deemed "unfair, deceptive, or designed to evade" the law. But to date, the Fed had only moved to ban certain practices on "high cost" loans. That meant that the restrictions applied to a very small number of mortgages -- just 0.1 percent of the loans made last year were covered.

But as credit problems intensified, Democrats increasingly chastised the Fed for not using its authority more aggressively. In July, Bernanke told Congress that the Federal Reserve would likely use its powers in this area, and he promised a proposal by the end of the year.