Despite Lifelines, Concerns Linger on Mortgage Giants

But he and other congressional observers said that some Republican lawmakers, particularly in the Senate, are likely to oppose the effort, perhaps holding it up temporarily.

In recent weeks, a handful of Republicans have used Senate rules to slow down the housing package. And yesterday, one of those senators, Jim DeMint (S.C.), released a statement skeptical of the Treasury proposal. "Congress should not use this 'crisis' to rush the government into the mortgage business," the statement said.

A crucial Republican leader, Sen. Richard C. Shelby (Ala.), yesterday declined to comment directly on the legislation. "We're in ongoing discussions and reviewing the details," said Shelby spokesman Jonathan Graffeo.

Senate Banking Committee Chairman Christopher J. Dodd (D-Conn.) said early yesterday that he was thinking about offering the Treasury initiative as a separate bill. But in a conference call with reporters later in the day, Dodd said he had reconsidered and that it made sense to add the initiative to the larger housing package.

Dodd said Treasury Secretary Henry M. Paulson Jr., Federal Reserve Board chairman Ben S. Bernanke and Securities and Exchange Committee Chairman Christopher Cox will appear before Dodd's committee this morning to answer questions about the initiative.

The story behind the weekend's dramatic announcements started late last year. Bush administration officials and Federal Reserve leaders were encouraging Fannie Mae and Freddie Mac, in private conversations and sometimes publicly, to raise more capital to ensure they could continue funding vast numbers of home loans even as other mortgage funding dried up.

But the companies were reluctant to do so, fearing that the value of their shares would decline.

Starting at the end of last month, when the companies' shares started plummeting, Paulson and Fed officials became increasingly worried -- not about the losses to shareholders, but that investors could lose faith in the trillions of dollars of debt the firms had outstanding if the stock prices got too low.

Paulson started daily conversations on the subject with his staffers, trying to firm up contingency plans. These included talks with the Treasury's acting undersecretary Anthony Ryan, assistant secretary David Nason and deputy assistant secretary Jeremiah Norton. Robert K. Steel, Paulson's right-hand man on these matters for the past two years, was already in talks to become chief executive of Wachovia, a position he accepted last week, and removed himself from most of the activity.

When the firms' shares fell by nearly 50 percent Friday morning and a sense of panic began to creep into world markets, their fears -- that buyers in the multitrillion-dollar bond markets would cease lending money to Fannie Mae and Freddie Mac, potentially causing a global crisis -- seemed closer to reality.

Those losses were stanched with a series of statements from Paulson, President Bush and congressional leaders. But by Friday evening, officials at the Treasury Department and the Fed had concluded that more concrete action would likely be necessary to ensure calm.

Treasury and company officials worked through the day Saturday, late into the night, and again on Sunday. They developed details of plans that had been on the shelf in vague terms for months. At Fannie, at least, contingencies were prepared in case the government decided not to act and the company had to protect itself on its own.