Congress dissects Treasury's GSE plan, no vote set

WASHINGTON (Reuters) - Congressional leaders on Tuesday agreed swift action is needed to bolster housing finance giants Fannie Mae (FNM.N) and Freddie Mac (FRE.N), but they raised basic questions about the Treasury Department's plan, leaving the timing of final action in doubt.

As share prices in the nation's largest mortgage companies tumbled for a third day, Massachusetts Democratic Rep. Barney Frank said Democrats plan to alter the Treasury's plan "to enhance taxpayer protection."

He said Democrats want to ensure that any Fannie or Freddie equity stake the government might buy under the plan -- unveiled on Sunday by Treasury Secretary Henry Paulson -- must be "a very senior position for the federal government," possibly involving preferred stock.

In the Senate, Paulson told a hastily convened banking committee hearing that Congress needs "to enact this plan as part of a complete legislative package, as soon as possible."

Connecticut Democratic Sen. Christopher Dodd, presiding over the hearing, said he would like to act on the plan this week. But he questioned how much power the plan would give to Treasury and how much risk taxpayers might have to shoulder.

"I welcome the fact that the Treasury is stepping up with some ideas, but I think all of us want the benefit of examining them more carefully," Dodd told reporters.

"We're very conscious of the fact that we need to move with a sense of urgency," he added.

Dodd chairs the Senate Banking Committee. Frank chairs the House of Representatives Financial Services Committee. Both are advocates of aggressive federal action to stem a wave of foreclosures among U.S. homeowners as home values fall.

The two lawmakers have been working for months on a far-reaching bill that would help thousands of distressed homeowners refinance from costly, exotic mortgages into more affordable, fixed-rate government-backed loans.

The bill would also set up a new regulator for Fannie and Freddie, government-sponsored enterprises that operate as private companies.

Frank and Dodd want to wrap Paulson's proposals into their wide-ranging housing bill. Congressional approval of the Treasury's proposals is needed.

Fannie and Freddie are the largest U.S. providers of housing finance and back about half of all American mortgages, but they have been hammered by a brutal stock market sell-off.

After plunging last week and on Monday, shares of Fannie on Tuesday closed down 27.3 percent at $7.07 on the New York Stock Exchange, while Freddie was down nearly 26 percent at $5.26.

Sagging market confidence in the two firms prompted Paulson over the weekend to propose a three-pronged plan that, if enacted, would make explicit for the first time an unspoken assumption markets have made for years -- that the government would come to the GSEs' aid in times of trouble.

Paulson wants Treasury to be allowed to buy and sell shares in the GSEs; to extend a line of credit to them; and to give the Federal Reserve a role in setting their capital levels.

In addition, the Fed on Sunday gave Fannie and Freddie access to its discount window for cheap loans if needed.

Dodd on Tuesday expressed concern about giving Treasury sole authority to set terms of GSE equity purchases. "It can't be the sole discretion of Treasury in my opinion," he said.

House leaders from President George W. Bush's own party said in a statement that they want more time.

"There is little question that action is necessary, but there are also important questions that must be answered about the Treasury proposal before we act," said House Republican Leader John Boehner and Republican Whip Roy Blunt.

Frank and House Speaker Nancy Pelosi vowed that the House would move quickly to pass the housing bill that has been under way for months and to incorporate the Paulson plan in it.

"I had hoped we would have this bill done by Thursday. But if we have to take a few more days to accommodate bipartisanship, we will do that. But it will be ready to be on the floor of the United States Senate next week," said Pelosi, a California Democrat, at a press conference.

Bush has threatened to veto the House housing bill based on objections to a provision to send $15 billion to communities hit hard by the crisis to buy and fix foreclosed homes.

Frank said Democrats were looking at putting that provision "into some other vehicle."

"Setting that aside, I think we can get agreement very quickly," he said,

(Additional reporting by Kim Dixon; Editing by Leslie Adler)