WASHINGTON (Reuters) - Congressional Democrats and the Bush administration were scrambling on Wednesday to shore up support for a major housing market rescue bill, as Republican backing for it faltered on doubts about adding on a plan to bolster Fannie Mae and Freddie Mac.
In a sign of the lame-duck White House’s fading clout on Capitol Hill, many 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 emerged from a meeting with lawmakers on Wednesday evening upbeat about prospects for the plan.
“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.
He wants to give Fannie and Freddie — known as government- sponsored enterprises, or GSEs — temporary access to unlimited cheap capital, in the form of government loans or equity investments — if they need it to remain viable.
The proposal has been sharply criticized by some Republicans as too open-ended and potentially too risky for taxpayers. Republican leaders in the House of Representatives have demanded hearings to further scrutinize the proposal, defying White House calls for swift legislative action.
Republican objections may amount only to election-year grand-standing, said Chuck Gabriel, a financial analyst at Washington, D.C.-based investment firm Capital Alpha Partners.
“It’s a perfect issue for Republicans to huff and puff about,” Gabriel said. “They can outflank the Democrats on who is worried about taxpayer risk.”
But he said Republicans would come around to support Paulson. “My strong guess is there is no way the Congress can go home for the summer recess without having approved this,” he said.
House Minority Leader John Boehner of Ohio believes Congress will ultimately embrace the package.
“The members clearly have concerns. But I do think, at the end of the day, this proposal is likely to become law,” he said.
Sincere or not, the Republican backlash was forcing Democrats to recalibrate tactics on a broader housing bill that has been under development for months, and which both they and the administration want to combine with the GSE proposals.
The housing bill would help thousands of distressed homeowners refinance exotic, expensive mortgages into more affordable, fixed-rate loans with government backing, as well as set up a new regulator for the GSEs.
With Republican support for the bill in jeopardy, Massachusetts Democratic Rep. Barney Frank on Wednesday was moving to lock in Democrats in hopes of ensuring passage in a House floor vote on the entire package expected on July 23.
To cement Democratic backing, Frank said a provision has been restored to the bill to send billions of dollars in grants to communities to buy and repair foreclosed homes. It had been dropped earlier in the face of a White House veto threat.
“When the administration asked for an open-ended commitment to calm the capital markets, it’s kind of hard to tell the mayors and the governors that they don’t get some help with foreclosed property,” Frank told reporters.
“The administration has raised the stakes and a lot of the Republicans are saying they don’t want to do this. We need Democratic support. So that’s one way to shore it up.”
Frank, chairman of the House Financial Services Committee, supports the housing bill and was upbeat about it. “We’re going to have it all done by the end of next week,” he said.
He added that he wants to make some changes to the Paulson plan, including giving the GSE regulator some power over Fannie and Freddie executive pay; ensuring that if the government does buy into the GSEs, it gets a senior preferred equity position; and halting any payment by the GSEs of stock dividends if they tap into the capital line extended to them by the Treasury.
Senate Banking Committee Chairman Christopher Dodd, a Connecticut Democrat, said on Wednesday he expects the Senate will be able to vote on housing and GSE legislation next week.
The White House said it believed Congress could complete the legislation by next week.
The stock prices of both GSEs have been hammered in recent days, but rebounded strongly on Wednesday. Fannie Mae’s stock closed up 30.8 percent at $9.25, while Freddie Mac’s shares rose 29.9 percent to $6.83, both on the New York Stock Exchange.
Financial stocks got a boost Wednesday when Wells Fargo, the nation’s fifth-largest bank and second-largest mortgage lender, posted a profit that topped analysts’ expectations.
Additional reporting by Glenn Sommerville, Jeremy Pelofsky, Donna Smith and Kim Dixon; Editing by Leslie Adler and Andre Grenon