WASHINGTON – Congress wants to require executives at Fannie Mae and Freddie Mac to have their pay packages approved by the government as part of a bill to throw a federal lifeline to the mortgage giants.
The idea comes as lawmakers scramble to limit the potential taxpayer costs of the rescue plan and satisfy critics of the government-sponsored companies who fear an open-ended bailout.
Rep. Barney Frank, chairman of the House Financial Services Committee, also wants to mandate that the companies delay issuing dividends until they reimburse the government, if the Treasury Department had to prop them up.
Frank, D-Mass., said Thursday the House plans to count any rescue effort under the overall $9.8 trillion statutory limit on the national debt. That approach is intended to answer charges that the aid amounts to a blank check.
"The fact that any expenditure under this bill would be subject to the debt limit is a cap, in effect, on the amount that you could put here. That invalidates these claims," Frank said.
"I'm optimistic that we will be able to send (the Bush administration) something that they will be able to accept," Frank said.
Frank met with Sen. Christopher Dodd, D-Conn, the Senate Banking Committee chairman, to work out details, and later met with Treasury Secretary Henry Paulson on the plan.
Paulson said he was confident "that we will come to a very acceptable result" on the proposal.
The Treasury chief is lobbying Congress for quick approval of his plan to temporarily empower the government to extend unlimited lines of credit to Fannie Mae and Freddie Mac and buy their stock. The Federal Reserve has offered to let the companies draw emergency loans.
The companies' shares have plummeted because of fears about their financial stability. Fannie Mae and Freddie Mac are private, but they were created by Congress to encourage homeownership by buying mortgages from banks. The two hold or guarantee more than $5 trillion in home loans — almost half of the nation's total.
The House plans a vote next Wednesday on a housing bill expected to include the help for Fannie Mae and Freddie Mac. President Bush has threatened a veto unless there are changes, but now is pressing to add the mortgage rescue as part of a broad compromise.
House Speaker Nancy Pelosi said she did not believe Bush would follow through on the veto even though Democrats plan to attach $3.9 billion in grants he opposes to buy and fix up foreclosed properties in areas hit hardest by the housing crisis.
"Let me get this straight. The president is asking us to do something quite significant to address this housing crisis, which has long been neglected by his administration, and he is going to resent the ability of state and local governments to buy up these properties?" Pelosi said. "I don't think the president is going to veto this bill."
Paulson says he does not expect to use the new federal authority to prop up Fannie and Freddie. By granting it, however, Congress would boost market confidence in the companies and thus avert a collapse that could ultimately require the government to step in with huge sums of money, he says.
He has refused to specify an upper limit on the rescue power, saying that doing so would wreak market havoc.
But congressional analysts have to issue a cost estimate for all legislation before lawmakers vote. Frank and Dodd are working to find ways to lower the projections.
They are weighing "what things we can do here that will give members and the taxpayers some assurance that this thing isn't a runaway horse," Dodd said.
Paulson has asked lawmakers not to subject the rescue authority to the debt limit, which Congress sets. By rejecting that request, lawmakers essentially would cap how much the government could spend to prop up the mortgage giants without further approval from Congress.
As of Tuesday, the national debt that counts toward the limit stood at just over $9.4 trillion, roughly $375 billion below the statutory ceiling. Congressional leaders long have planned to increase that cap to $10.6 trillion before the end of the year.
The housing measure already tightens controls on Fannie Mae and Freddie Mac, creating a strong regulator to oversee their operations. "We're going to make it explicit" that the regulator would have to approve executives' pay, Frank said.
The rescue plan has sparked a backlash among Republican lawmakers, many of whom oppose the very existence of government-chartered private mortgage companies. They point to recent accounting scandals at Fannie Mae and Freddie Mac, lucrative pay packages for their executives, and their considerable expenditures on lobbying to argue that the firms abuse their special status to enrich themselves and then expect taxpayers to foot the bill when they're in trouble.
Frank has also floated the idea of giving Treasury a preferred class of stock that would enable the government to be reimbursed before other shareholders in the event of any collapse. Dodd has questioned the idea, saying it could discourage private investors from buying the companies' shares.