Congress dissects Treasury's GSE plan, no vote set

By Kevin Drawbaugh

WASHINGTON (Reuters) - Congressional leaders on Tuesday agreed swift action is needed to bolster housing finance giants Fannie Mae and Freddie Mac, 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.