Congress May Vote Today on Fannie-Freddie Rescue Plan (Bloomberg)

July 23 (Bloomberg) -- The U.S. Congress may vote today on arescue plan for Fannie Mae and Freddie Mac after lawmakersreached a deal on legislation aimed at alleviating the worsthousing recession in a quarter century.

Treasury Secretary Henry Paulson today said the bill willsend a ``very strong message'' and is ``key to helping us turnthe corner'' after a slide in confidence in the firms. The WhiteHouse dropped a veto threat over a measure to buy up foreclosedproperties, spurring Senate Majority Leader Harry Reid to predictboth legislative houses may approve the legislation today.

Paulson will get power to make unlimited equity purchases inand lend to Fannie Mae and Freddie Mac to prevent a collapse in thefirms that account for 70 percent of new U.S. mortgages. The billalso provides for a federal agency to insure up to $300 billion ofrefinanced mortgages for struggling homeowners. Stocks rallied.

``It's important to get this legislation in place, andCongress and Paulson have done well to put together a workmanlikebill,'' said Peter Wallison, a former Treasury general counselwho is now a fellow at the American Enterprise Institute inWashington.

Legislators forged the agreement nine days after Paulsonasked for powers to inject capital into the two mortgage financecompanies, arguing the step was vital to shore up confidence inU.S. financial markets.

Shares Gain

Fannie Mae gained $2.46, or 18 percent, to $15.87 at 11:16a.m. in New York Stock Exchange composite trading. Freddie Macadded 96 cents, or 10 percent, to $10.66. The Standard & Poor's500 Stock Index gained 0.7 percent to 1,285.72

White House spokeswomanDana Perino today said PresidentGeorge W. Bush will sign the bill, removing the previous vetothreat over a provision to include $3.9 billion in aid tocommunities hit by the housing recession.

It's ``really good news'' that Bush removed his rejectionwarning, Reid, a Nevada Democrat, said today. He said the bill is``a very good piece of legislation,'' and ``I hope we can finishit today,'' sending it to the president for signing into law.

Lawmakers added the provisions to a bill that would create astronger regulator for Fannie Mae and Freddie Mac and expandfederal efforts to stem mortgage defaults.

Lawmakers Compromise

Representative Barney Frank, a Massachusetts Democrat whochairs the House Financial Services Committee, said afterlawmakers reached agreement yesterday that ``nobody is foreverything that's in it or got everything in it he wanted, but wenegotiated a lot.''

Lawmakers, intent on limiting potential losses to taxpayers,tied the potential aid to Fannie Mae and Freddie Mac to thefederal debt limit. Still, they also raised that ceiling to $10.6trillion from the current $9.815 trillion.

Paulson, in an emergency move after Fannie Mae and FreddieMac stock dropped to the lowest levels in more than 17 years,asked July 13 for power to make unlimited equity purchases in thefirms. He also asked for ``unspecified'' increases in their linesof credit, from $2.25 billion each. Both proposed measures wouldlast until the end of next year.

Democratic lawmakers challenged Bush with yesterday's dealby including $3.9 billion for communities to purchase foreclosedproperties. The White House opposed the measure, saying it wouldaid lenders who now owned the vacated properties rather thanstruggling homeowners.

No Veto

Perino said while the White House thought it would have thevotes to uphold a veto, time was running out for action beforelegislators begin their summer recess in August.

``We believe this is not the time for a prolonged vetofight,'' she said in a conference call with reporters.

Washington-based Fannie Mae and McLean, Virginia-basedFreddie Mac own or guarantee about half of the $12 trillion ofU.S. home loans outstanding. The companies face mounting lossesstemming from the collapse of the subprime market.

Fannie Mae dropped about 45 percent in the month throughyesterday, and Freddie Mac tumbled about 60 percent, on concernthey have insufficient capital to cover writedowns and losses.

``This is about not only our housing markets, but it's aboutour capital markets more broadly,'' Paulson said in an interviewwith Bloomberg Television yesterday. ``We must, in the shortterm, take steps to boost confidence'' in the firms.

Fed Role

In addition to a new regulator, the bill provides for theFederal Reserve to consult on Fannie Mae and Freddie Macfinances. Paulson said this week that the Fed has already begunparticipating in assessments of the companies.

The housing bill would create a program aimed to help anestimated 400,000 Americans with subprime home loans refinanceinto 30-year, fixed-rate mortgages backed by the government.

Fannie Mae and Freddie Mac would have a new, higher cap onthe size of mortgages they may purchase. The new limit would be$625,000, or the median home price plus 15 percent, whichever islower, Frank said.

States would be able to offer an additional $11 billion ofmortgage-revenue bonds to refinance subprime loans.

Chances for the legislation's passage also got a boostyesterday when the Congressional Budget Office released a costestimate for Paulson's plan that was lower than some had feared.While a range of outcomes was possible, the non-partisan groupput a price tag of $25 billion on the proposals.

``It's pretty good news -- a lot of people thought it wouldbe much higher,'' Senator Richard Shelby of Alabama, the SenateBanking Committee's top Republican, said yesterday.

To contact the reporter on this story:Brian Faler in Washington at