Paulson Expects Rescue Plan For Fannie This Week

Treasury Secretary Henry Paulson, calling it critical that the markets have confidence in Fannie Mae and Freddie Mac, said he expects to get congressional approval for a proposed rescue plan this week.

Henry Paulson
Henry Paulson

Paulson told CNBC in a live interview that he hopes Congress will approve something that provides a wide berth of movement to help the government-sponsored enterprises should they encounter issues with capital.

"I would like this authority to be as flexible as possible and as unprescriptive as possible, because I believe that will do the most to protect the taxpayer," Paulson said. "Before doing something I would consult with members of Congress, but obviously if the government wanted to put equity in these organizations we would do so in a way that protected the taxpayer and there would a number of things we would look for and be receiving."

The plan would give the Treasury temporary authority to increase the credit lines for Fannie and Freddie and purchase their shares if needed. Paulson said the ultimate goal is to ensure domestic and global markets that the two biggest mortgage providers in the US are solvent and will remain so even if it requires government intervention.

"These are institutions that have a single line of business--housing. They haven't had lax procedures like you've seen in some other financial institutions," he said. "But there are concerns, there are some concerns in the marketplace about capital.

"The easiest way I know of to address those concerns is to say that these organizations are essential, that we understand this, we understand how important they are to the capital markets and the economy and we're there if necessary to make that capital available."

Meanwhile, demand for debt sold by Freddie Mac weakened while a prominent analyst estimated Freddie and Fannie Mae each need to raise up to $15 billion in fresh capital.

Despite the poor showing, it may be premature to read too much into the weaker demand for the $3 billion in bills given that share prices of both Fannie and Freddie soared last week, an analyst said.

In Washington, the stalemate over legislation aimed at stabilizing the worst U.S. housing market since the Great Depression may be loosening.

The White House on Monday said it hoped for movement on housing legislation being negotiated with Congress by the end of this week, although President Bush would veto a bill if it included $4 billion in grants that would let local communities buy foreclosed homes.

--Reuters contributed to this report.