The Bush administration lobbied skeptical lawmakers Wednesday to support a rescue plan for Fannie Mae and Freddie Mac, as lawmakers weighed how to protect taxpayers while still giving the government unfettered power to pour money into the mortgage giants.
The administration's request for urgent action to prop up the troubled companies has sparked concern in Congress, particularly among Republicans who are loath to let the government interfere in financial markets. But it's also sweeping away the last obstacles to a separate broad housing package that's expected to clear Congress by the end of the month.
“I'm uneasy, as are many (lawmakers), about unlimited authority, and we may need to do things to give taxpayers assurance,” Sen. Christopher J. Dodd, D-Conn., the Banking Committee chairman, said in an interview. “We're going to make sure that what we're doing here is not going to expose them to a disastrous situation down the road.”
Dodd is consulting with Rep. Barney Frank, D-Mass., the Financial Services Committee chairman, and Treasury Secretary Henry Paulson on the details of the proposal.
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Paulson worked the phones and met with lawmakers Wednesday seeking to allay Republicans' fears about the plan, which specifies no upper limit for what the government could spend to prop up the mortgage giants.
Paulson argues that he's proposing a backstop that won't have to be used, and that placing a dollar amount on it would spook markets and exacerbate the problem.
In a closed-door meeting, Paulson asked an at-times hostile audience of House Republicans to support the rescue, which he described as vital to stabilizing capital markets and the broader economy.
“I am optimistic that this is going to be done quickly, and it's not blind optimism,” Paulson said after the meeting.
“Members clearly have concerns,” said Rep. John Boehner, R-Ohio, the minority leader. “But I do think at the end of the day this proposal is likely to become law.”
The push to shore up Fannie Mae and Freddie Mac is adding momentum to the housing package, which creates a new regulator and tighter controls over the companies and creates an affordable housing fund financed by their profits.
The bill creates a $300 billion program at the Federal Housing Administration to let strapped homeowners who can't afford their monthly payments – many trapped in subprime loans and owing more than their homes are worth – refinance into cheaper, fixed rate mortgages instead of losing their homes.
The new Fannie Mae and Freddie Mac plan has emboldened Democrats to defy Bush's veto threat and demand that the bill include one of their highest priorities: $3.9 billion to fix up foreclosed properties in neighborhoods hit hardest by the housing crisis. House Democrats, who had planned to drop the funds as part of a compromise with the White House, now insist it stay in the bill.