Congress appears to be on the verge of creating a new type of security that may help banks remove short-term loans from their books.

Tax legislation approved by the Senate July 9 would make it easier to securitize a wide variety of short-term debt, including credit card receivables and auto and home equity loans.

The bill would create a new financial instrument called a financial asset securitization investment trust, or Fasit, which would pass all tax liabilities to investors.

Without the legislation, an investment trust's income could face double taxation - first at the corporate level, then at the investor level.

Although securitization of other debt instruments, especially mortgage loans, is big business, the market for short-term financings has lagged because issuers and investors face uncertain tax liabilities.

The proposal is supported by a number of big banking companies, including Citicorp and Chase Manhattan Corp., as well as leading investment firms.

Donald B. Susswine, a tax partner in the Washington office of the Thacher, Proffitt & Wood law firm, said Fasits could add fuel to the new issues market for nonmortgage, asset-backed securities, which could reach $150 billion this year. "This is something that could be the wave of the future," he said.

Fasits are modeled after real estate mortgage investment conduits, or Remics, which were created in 1986 for securitizing of mortgages.

Since Congress created tax breaks for Remics, the market for mortgage- backed securities has soared. Of the $2.6 trillion in mortgages outstanding in 1986, $600 billion were securitized - about 23%, according to Inside Mortgage Finance. Today more than half the $4.4 trillion in mortgages outstanding are securitized, according to the Federal Reserve. The popularity of Remics played a big role in that growth, Mr. Susswine said.

Fasits could do the same for short-term loans, supporters said. "You need to have a clear set of tax rules to deal with these new financial areas," said Thomas A. Humphreys, a tax partner in the New York law firm Brown & Wood. "If you look at the Remic legislation, it's been a tremendous success. Fasit, to a large degree, is going to do the same thing."

For example, Fasits finally would create a catchall vehicle for securitizing all forms of debt, said Christina A. Cotton, a senior analyst at Moody's Investors Service Inc. Though there is a great desire to securitize nonmortgage loans, the market has been hampered because the offerings employ myriad structures in order to prevent the trusts from being classified as taxable corporations, she said.

"Right now there is no bright-line standard," she said. "Clear tax rules would reduce or even eliminate these costly inefficiencies that prevent issuers from meeting the needs of investors in the secondary market."

Fasits have other advantages:

*They can be tailored to meet investors' demands for varying maturities, different prepayment and credit risk profiles, and diverse interest rate predictions.

*Unlike Remics, Fasits can add assets after the security is issued, in order to replace debt that has expired or been prepaid.

*All types of debt, including mortgages, can be included in a security.

Although the ability to add loans to a security's pool is a big advantage, Fasits are unlikely to replace Remics any time soon, said Mr. Humphreys, the New York lawyer. "The two structures are going to compete, but I think there's a certain amount of satisfaction with the Remic vehicle so you won't see a lot of switching," he said.

The legislation's chances appear good. It is attached to a popular Senate bill granting small-business tax breaks that has bipartisan support. Though the House's version of the tax break legislation lacks a Fasit provision, a separate bill has 30 co-sponsors.

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