Paulson: Rescue bill key to solving housing crisis

By MARTIN CRUTSINGER, AP Economics Writer Wed Jul 23, 4:07 PM ET

WASHINGTON - Treasury Secretary Henry Paulson said Wednesday that agreement on a sweeping housing rescue bill will send a strong message to investors around the world and will be key to helping the nation turn the corner on the housing crisis.

Paulson said the bill had some "wasteful" provisions such as a $3.9 billion measure to provide federal help for homeowners facing foreclosure.

But Paulson said he had urged President Bush to drop his veto threat over this provision because of the other important elements in the bill that would provide support to Fannie Mae and Freddie Mac.

"It is a strong message that we are sending to investors around the world and in the United States that we understand the importance of these organizations to our capital markets and to our housing markets," he told reporters Wednesday at the Treasury Department. He said the legislation would play a key role in "helping us turn the corner" on the housing crisis.

After intensive discussions, congressional negotiators and the administration reached a deal late Tuesday. The House was expected to vote on the bill later Wednesday.

The proposal would provide the Treasury Department the power to extend to Fannie Mae and Freddie Mac an unlimited line of credit and buy their stock for 18 months if necessary to bolster investor confidence in the two mortgage giants. Fannie and Freddie either guarantee or own more than $5 trillion of mortgages — almost half of the nation's total.

Paulson said the deal would serve as an important confidence booster to financial markets, which have beaten down the value of the two companies' stocks in recent weeks over rising worries about how they will be able to cope with billions of dollars of losses on mortgage loans.

"The single most important thing that we can do to help get through this housing correction is a strong GSE bill," Paulson said of the measure, which will replace the current regulator for Fannie and Freddie with an agency with enhanced oversight powers. Fannie and Freddie are known as government sponsored enterprises.

Paulson said it was not difficult to convince the president to drop his veto threat because "he understands the importance of this topic."

Paulson refused to be drawn into an analysis released Tuesday by the Congressional Budget Office which gave a rough estimate of $25 billion as the potential cost to taxpayers of the support effort for Fannie and Freddie.

The CBO gave a wide range of what the costs might ultimately be — from zero if markets stabilize and the two institutions do not have to draw on the federal support, to a small chance the two institutions could lose $100 billion.

"Congressional (budget) scoring is a mystery to me," Paulson said. "We are talking about the authority to lend against collateral, to make investments ... and so I leave the scoring to the scorers."

(This version CORRECTS and expands Paulson quote. )