House likely to modify Fannie, Freddie rescue

Congress is expected to vote next week on an amended housing rescue bill that includes Treasury's proposals to offer financial backstop to Fannie and Freddie.

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Jeanne Sahadi, senior writer

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NEW YORK ( -- The House is likely next week to take up a Bush administration proposal to empower the Treasury to back up embattled mortgage giants Fannie Mae and Freddie Mac.

Lawmakers will probably accommodate the broad outlines of a proposal by Treasury Secretary Henry Paulson to offer explicit backing for the two government-sponsored enterprises.

But House Financial Services Chairman Barney Frank, D-Mass., and other key leaders are expected to impose parameters that will counter concerns that the plan gives Treasury a blank check.

Paulson asked lawmakers this week to allow the Treasury over the next 18 months to offer the companies an unlimited line of credit and to buy as much stock in them as the Treasury sees fit. He also stressed that "there are no immediate plans to access either the proposed liquidity or the proposed capital backstop." The point of having the rescue plan in place, he said, is to instill market confidence.

But Frank has said he will propose that the line of credit be subject to the national debt ceiling of $9.815 trillion, most of which is already used. In effect, Frank's provision would effectively cap how much the companies could borrow from the Treasury.

The House will also consider provisions that would require Fannie (FNM, Fortune 500) and Freddie (FRE, Fortune 500) to not pay dividends to investors until the government is paid back the money it's loaned.

It's also possible lawmakers will insist that any securities the Treasury buys be preferred stock, meaning the government would have priority over common shareholders in the payment of dividends or, if they're liquidated, assets.

Once congressional staffers finish writing the legislative language, the Congressional Budget Office will have to estimate the cost of the rescue plan to federal coffers.

The Fannie and Freddie rescue plan will probably be attached to a broader foreclosure relief bill that has been in play for months. The House is expected to vote on it on Wednesday. If it passes, it will then be returned to the Senate for consideration.

The housing bill includes measures to strengthen the regulation of Fannie and Freddie and to create a new program of government-backed mortgages for borrowers at risk of foreclosure. It also is now expected to include a provision that would grant $4 billion to states to buy up and rehabilitate foreclosed properties.

The White House has threatened to veto the bill over the $4 billion provision. But House Speaker Nancy Pelosi and other Democratic leaders are no longer as concerned about a veto since the Bush administration has placed a high priority on getting a rescue plan as well as GSE reform in place as quickly as possible.

"I don't think the president is going to veto this bill," said Pelosi at a press conference this week. "I don't think so."

- CNN congressional producer Deirdre Walsh contributed to this report. To top of page

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