UPDATE 1-US Congress Dems want GSE proposals in housing bill

(Adds Dodd, Hensarling comments; updates share prices)

By Kevin Drawbaugh

WASHINGTON, July 14 (Reuters) - Congressional backers of a broad housing market rescue bill want to combine it with Bush administration proposals to bolster Fannie Mae FNM.N and Freddie Mac FRE.N, but Republican resistance was mounting on Monday amid questions about the cost to taxpayers.

If partisan infighting erupts over the proposals from the Treasury Department and the Federal Reserve, efforts in Congress to respond to the widening U.S. housing crisis that have been under way for months could be further delayed.

Even as senior Democrats were predicting swift action, Texas Republican Rep. Jeb Hensarling was circulating a letter in the House of Representatives calling for hearings, debate and amendments on the proposals made over the weekend.

Hensarling is chairman of the Republican Study Committee, a faction of 104 of the House's most conservative members who sometimes clash with House Republican leadership.

"We have significant concerns about proposals to provide new, direct federal financial assistance to Fannie Mae and Freddie Mac," Hensarling wrote in a letter to House Speaker Nancy Pelosi and Rep. Barney Frank, two leading Democrats.

He said the Bush administration proposals raise concerns about government's role in dealing with Fannie and Freddie "and deserve careful consideration before enactment."

In the Senate, an aide said that Republicans were in discussions and studying the administration proposals.

Both Frank of Massachusetts and Sen. Christopher Dodd, a Connecticut Democrat, said on Monday they hoped to move ahead within days on the administration's proposals to make billions of dollars in federal funds available to Fannie and Freddie, the country's largest mortgage financing groups.

Dodd chairs the Senate Banking Committee while Frank heads the House Financial Services Committee. Both have been major advocates of aggressive federal action to stem a wave of foreclosures engulfing the housing market amid falling home values.

COMBINED MEASURES SEEN

Frank said on Monday he wanted to make the Fannie and Freddie proposals part of a housing bill -- already passed by the Senate -- that could be passed by the House this week.

Once any legislative differences were resolved, he said, a final bill would go to the White House to be signed into law.

"The stability of Fannie Mae and Freddie Mac is crucial to America's mortgage market," said House Majority Leader Steny Hoyer, a Maryland Democrat, in a statement in which he pledged "timely consideration" of the regulators' proposals.

On Sunday, the Bush administration sought to restore sagging market confidence in Fannie and Freddie by proposing that the companies be given access, if needed, to cheap government capital in loans and equity investments.

The surprise move followed a sharp decline last week in Fannie's and Freddie's stock prices. Shares in both dropped again on Monday. Fannie shares closed on the New York Stock Exchange down 5.1 percent at $9.73; Freddie shares ended down 8.3 percent at $7.11.

The declines came despite the fact that buyers flocked early on Monday to a Freddie Mac sale of $3 billion in debt.

With home values falling and foreclosures on the rise, the government is scrambling to minimize wider damage to the economy from the steepest housing slump in decades.

Frank said on Monday that investors were "inaccurately" worried about Fannie and Freddie possibly becoming insolvent.

He said, "We got into trouble because there was not adequate regulation of the mortgage business ... The one thing people should be confident about (is that) we are not going to have any more of this. We have learned now not to do this."

In related news, the Federal Reserve Board on Monday passed rules aimed at cracking down on misleading and deceptive practices in the mortgage lending industry, including a ban on prepayment penalties for many risky loans.