Confidence is Key in Mortgage Giants Rescue Plan

Yet lax lending standards and an eagerness to make sales eventually led to a collapse in prices which economists now say may not recover for several years.

Confidence Building

In days after the stocks fell, the White House and President Bush's top economic advisor Henry Paulson issued statements in support for the companies and urged Congress to take action.

A week after the crisis began, Paulson formally proposed a plan for the companies, saying that the firms' role in supporting the housing market's "continued strength is important to maintaining confidence and stability in our financial system and our financial markets."

While Paulson -- the former chief executive of one of Wall Street's most successful investment banks -- wanted to keep the companies in private hands, his plan would boost credit lines to firms and give the Treasury the ability to buy stakes in the companies if needed. He also proposed a stronger regulator for the firms.

Company executives praised the government action.

Fannie chief executive Daniel H. Mudd expressed appreciation and gratefulness for the support. Freddie CEO Richard F. Byron said the firm was heartened. Both firms said they had enough capital and did not need the additional government help but said the new options would help stabilize markets.

On his weekly national radio address and in a press conference to report on steps being taken by his administration to boost the slowing economy, Bush urged lawmakers to approve Paulson's plan.

"It's been a difficult time for American families," Bush said at one press conference. "We must ensure we can continue providing credit during this time of stress."

At a hearing before Senators in Washington, Paulson pushed to convince some lawmakers who opposed giving the Treasury an unlimited amount of money to support the companies.