Paulson endorses Fannie, Freddie capital moves

Paulson acknowledged that Fannie and Freddie, which together issue more than three-quarters of securities backed by home mortgages, have been "stressed" by the crisis in the housing market. But he rejected the view, held by many analysts, that allowing them to buy up additional mortgages poses a threat to their stability and the financial system.

"We in Treasury are appreciative of the role they're playing," Paulson said in an interview with The Associated Press.

Moreover, if investors are willing to pump fresh capital into Fannie and Freddie, the companies should "go get it" Paulson said.

After reporting a $2.2 billion first-quarter loss on Tuesday, Fannie said it plans to raise $6 billion, mostly by selling stock, as it seeks to play a bigger role in making funds available to homeowners. Wall Street showed approval, pushing up Fannie's stock price by 9 percent, and the agency that regulates the company said it would loosen rules intended to limit how much debt the company can take on.

On Wednesday, the notion that the housing slump is hardly over was reinforced by data released by the National Association of Realtors. The industry group reported that pending U.S. home sales tumbled to a new low in March. The report pushed stocks of homebuilders mostly lower; D.R. Horton Inc., one of the largest builders, dropped 73 cents, or 4 percent, to $16.12.

Shares of Fannie fell nearly 4 percent, or $1.22, to $29.59 in afternoon trading.

The battered housing market "continues to be the biggest risk to the downside" for the economy, Paulson said during the interview. Even optimists generally expect the dislocation to continue for at least several months, he noted.