Democrats, Paulson fight to keep housing bill moving

By Kevin Drawbaugh

WASHINGTON (Reuters) - Congressional Democrats and the Bush administration scrambled on Wednesday to shore up support for a major housing market rescue bill, as Republican backing for it faltered on doubts about attaching a plan to bolster Fannie Mae and Freddie Mac.

Some conservative Republicans were balking at a proposal unveiled over the weekend by the Treasury Department to prop up Fannie and Freddie, the nation's largest mortgage finance companies, amid a deepening U.S. housing crisis.

Treasury Secretary Henry Paulson went to Capitol Hill on Wednesday evening for meetings with lawmakers from both parties on his proposals for Fannie and Freddie, which are known as government-sponsored enterprises, or GSEs.

He emerged from the sessions sounding upbeat about his prospects. "I feel very confident and optimistic that there is broad-based support for moving quickly in getting GSE reform done ... sometime next week," Paulson told reporters.

"It's something I want to see done quickly," he added.

The secretary wants to give the GSEs temporary access to unlimited cheap capital, in the form of government loans or equity investments -- if they need it to remain viable.

With markets nervous about the housing slump, the stock prices of Fannie and Freddie have been hammered in recent days, although they rebounded strongly on Wednesday. Amid a general bank stock recovery, Fannie shares closed up 30.8 percent at $9.25, while Freddie shares rose 29.9 percent to $6.83.

Paulson's proposal has been sharply criticized by some Republicans as too open-ended and too risky for taxpayers. Republican leaders in the House of Representatives have demanded hearings to further scrutinize the proposal.

But House Minority Leader John Boehner was positive after meeting with Paulson. "The members clearly have concerns. But I do think, at the end of the day, this proposal is likely to become law," the Ohio Republican told reporters.

Delaware Republican Rep. Michael Castle said after the same meeting, which was attended by many Republican lawmakers, that "some of the questions (to Paulson) were hostile."

He said the administration has considerable work to do to convince some House Republicans to back the GSE proposals.

Rep. Spencer Bachus, top Republican on the House Financial Services Committee, said his fellow Republicans on the panel want a stripped-down housing bill, not the big package envisioned by committee Chairman Barney Frank that includes measures under development for months, plus Paulson's plan.

"Committee Republicans would like to see a stand-alone bill," said Bachus, of Alabama, after meeting with Paulson.

Senate Banking Committee Chairman Christopher Dodd said he does not see the Paulson proposals being divorced from the broader housing bill. "I think it has to be" one package, said the Connecticut Democrat following his own meeting with Paulson.

In the end, Republican objections may only be election-year grand-standing, said Chuck Gabriel, a financial analyst at Washington, D.C.-based investment firm Capital Alpha Partners.