WASHINGTON – July 16, 2008 – Key Republicans on Tuesday expressed skepticism about an emergency Treasury Department plan to bolster troubled mortgage giants Fannie Mae and Freddie Mac, defying President Bush and raising doubts on Wall Street about quick enactment.

Fannie Mae and Freddie Mac shares took a bath in the markets Tuesday as some traders apparently concluded the cavalry – in the form of government help – might arrive too late to save their investments. Fannie Mae shares fell 27.3 percent to close at $7.07, while Freddie Mac was down 26 percent to close at $5.26.

The shareholder-owned firms, which buy mortgages and resell them to investors as bonds, were created by Congress decades ago. Investors have been fleeing Fannie Mae and Freddie Mac as mortgage foreclosures rise and their positions weaken. The duo have holdings of about $5 trillion, and their regulator says they now have sufficient capital.

Bush, in a news conference Tuesday, implored lawmakers to “move quickly” on a plan outlined Sunday night to back up the mortgage giants. The companies have indicated no immediate need, but the administration and the Federal Reserve seek authority to increase government credit to the companies and to invest.

Democrats, who have been friendlier to the Bush plan, said they are on track to move it quickly. They may also be complicating passage by insisting on tying the proposal to a housing bill that has some provisions the White House opposes. Top House Republican leaders called for a hearing and debate on the proposals, which could take weeks.

At a Senate Banking Committee hearing, Sen. Richard Shelby, R-Ala., said he was skittish about a plan that he said essentially gives the Treasury a “blank check.”

Treasury Secretary Henry Paulson told the committee he has “no immediate plans” for lending or stock purchases and would intervene “only if necessary.”

But Paulson doesn’t want Congress to set a specific dollar limit on potential Treasury actions. Vague, potentially large power is more potent for calming markets.

“If you’ve got a squirt gun in your pocket, you probably will have to take it out,” Paulson said. “If you have a bazooka ... people know it, (so) you probably won’t have to.”

Securities and Exchange Commission Chairman Chris Cox told the hearing he will use emergency power to limit short selling of Fannie Mae and Freddie Mac stock, which may be accelerating the share-price declines. Short selling, which involves trading borrowed stock, produces a profit when the price goes down.

Copyright 2007 USA TODAY, a division of Gannett Co. Inc., Sue Kirchhoff

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