UPDATE 1-Mortgage bankruptcy reform returns in U.S. Senate

(Adds more details of bill, arrival in lame-duck session)

WASHINGTON, Nov 17 (Reuters) - A U.S. senator on Monday introduced legislation to let judges alter the terms of distressed mortgages in bankruptcy cases, reviving a controversial proposal meant to help troubled homeowners, said an aide to the lawmaker.

Illinois Democrat Richard Durbin unveiled the bill, which his spokesman said would "allow bankruptcy judges to modify mortgages on primary residences."

The bill was introduced in what is expected to be an abbreviated lame-duck session of Congress, called to address a possible auto industry bailout and economic stimulus measures. A new Congress will be seated in January.

The Senate in April voted against a similar mortgage bankruptcy proposal, also supported by Durbin.

His bill this time around would also require certain federal agencies to restructure mortgage loans involved in homeowner assistance programs already approved by Congress.

Two such programs established in recent months urged, but did not require, modification of eligible mortgage loans.

Durbin's bill also would bar any bank participating in a massive government bailout program from increasing its dividend while the government owns preferred shares in the bank.

It would also require any participating bank to cut next year's dividend by an amount equal to the pay of the top five executives in excess of $500,000 each. (Reporting by Kevin Drawbaugh; Editing by Tim Dobbyn)