U.S. offers a rescue of Fannie, Freddie

WASHINGTON — Alarmed by the sharply eroding confidence in the nation's two largest mortgage finance companies, the Bush administration on Sunday asked Congress to approve a sweeping rescue package that would give officials the power to inject billions of federal dollars into the beleaguered companies through investments and loans.

In a separate announcement, the Federal Reserve said that it would make one of its short-term lending programs available to the two companies, Fannie Mae and Freddie Mac. The Fed said that it had made its decision "to promote the availability of home mortgage credit during a period of stress in financial markets."

An official said the Fed's decision to permit the companies to borrow from its so-called discount window was approved at the request of the Treasury but that it was temporary and would probably end once Congress approved Treasury's plan. Some officials briefed on the plan said Congress could be asked to extend the total line of credit to the institutions to $300 billion.

It was the second time in four months that the housing crisis had prompted the government to step in and rescue a major financial institution. Last March, the Treasury Department engineered the sale of Bear Stearns to prevent it from going into bankruptcy and causing a shock to the financial system.

The administration's plan was disclosed on Sunday evening to calm jittery markets overseas and on Wall Street in advance of a debt sale by Freddie Mac this morning. Officials said that after talking to senior lawmakers through the weekend, they expected that Congress would attach the proposals to a housing bill that could be completed and sent to the White House for approval as early as this week.

"The president has asked me to work with Congress to act on this plan immediately," Treasury Secretary Henry Paulson said Sunday on the steps of the Treasury building. "Fannie Mae and Freddie Mac play a central role in our housing finance system and must continue to do so in their current form as shareholder-owned companies. Their support for the housing market is particularly important as we work through the current housing correction."

While senior Democratic and Republican officials in successive administrations have for many years repeatedly denied that the trillions of dollars of debt they issued is guaranteed, the package, if adopted, would bring the Treasury closer than ever to exposing taxpayers to potentially huge new liabilities.