A senior U.S. Treasury official Thursday conceded the department must work to tamp down Congressional opposition to a financial backstop for mortgage finance giants Fannie Mae and Freddie Mac but said it was vital to get the proposals passed.
Treasury's acting under secretary for financial markets, Anthony Ryan, said repeatedly during a CNBC television interview he didn't think the troubled government-sponsored enterprises would need to tap unlimited credit lines but said it would help stabilize financial markets if they had it. (For the full interview, see the video.)
On Sunday night, Treasury Secretary Henry Paulson offered unlimited increases in lines of credit for Fannie Mae and Freddie Mac and said Treasury would buy stock in them, if necessary, to add capital.
The Federal Reserve said the shareholder-owned companies, which together own or guarantee nearly half of outstanding U.S. mortgages, would be able to borrow at its discount window if necessary until the Treasury plan was in place.
But lawmakers, especially Republicans, have expressed strong opposition to what some claim amounts granting a "blank check" to Paulson to help the GSEs.
Paulson was on Capitol Hill on Wednesday trying to shore up support for the proposals.
"Obviously we need to work with Congress," Ryan said. "They understand the importance and role of stability in capital markets for our economy and we're optimistic that we're going to continue to move forward."
He noted Fannie Mae and Freddie Mac stock was widely held around the world, adding: "The stability of these institutions is very important and having this ultimate backstop -- again, we don't see that they'll have to access this -- sends a very strong message in terms of the stability of the marketplace."
Asked whether specifying a dollar amount would ruin the effectiveness of the plan, Ryan said "I think it limits it, and it creates additional challenges for the marketplace. It looks different than it does when it's unconditioned and unlimited."
Initially, Paulson and some Democrats had been hopeful they could attach the GSE backstop proposals to a housing bill already moving through Congress and get the whole package to the White House for signing into law this week.
That hope has disappeared but Paulson said on Wednesday, after meeting lawmakers, that he was still optimistic about action next week.
"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." Ryan said having the backstop in place would help restore financial market stability.
It would ensure that the vital role that Fannie and Freddie play -- buying mortgage loans from lenders that are repackaged into securities and sold -- is not interrupted and that mortgages continue to be made.
"It's important that these enterprises continue to play the role that they do, in their current form, and continue to provide mortgage availability and credit," Ryan said.
"The stability of the capital markets is in everybody's interest so we need to continue to help and work with the staff and the Congressmen and Senators to make sure they understand the importance and to move quickly on this," Ryan added.
In two days of testimony about economic conditions this week, Fed Chairman Ben Bernanke stressed that "serious difficulties" the economy faces are centered in a faltering housing market and urged Congress to act speedily on proposals for propping up Fannie Mae and Freddie Mac.