Dodd To Call On Paulson To Testify

The chairman of the Senate Banking Committee, Christopher Dodd, said he is asking Treasury Secretary Paulson to testify this week on the federal government's takeover of Fannie Mae and Freddie Mac.

Mr. Dodd, a Connecticut Democrat, in a conference call with reporters yesterday said he wants to explore the ramifications of the government's decision to place the government-sponsored enterprises under conservatorship, removing their chief executive officers and eliminating dividends.

"We need to know whether or not this plan is going to maintain the role of the GSEs in providing affordable mortgages to Americans," Mr. Dodd said.

The Treasury may purchase up to $200 billion of stock in the firms to keep them solvent after the weekend takeover engineered by Mr. Paulson and the director of the Federal Housing Finance Agency, James Lockhart. Common stockholders of Washington-based Fannie Mae and McLean, Va.-based Freddie Mac will be last in line for any claims, Mr. Paulson said Sunday at a Washington news conference. Preferred shareholders will be second in absorbing losses, he said.

Mr. Paulson in July asked lawmakers to add a provision into foreclosure-prevention legislation that would let him inject capital into Fannie Mae and Freddie Mac through government loans and investments. It was included in the measure that became law.

Mr. Dodd said he wanted to know what happened in the past month that caused Mr. Paulson to decide the authority granted by Congress was inadequate.

"To use his analogy all he wanted was the bazooka, he didn't want to use it. He didn't want a squirt gun," Mr. Dodd said on the conference call. "Merely the authority would provide exactly the desired reaction in the markets."

Mr. Dodd said he also wanted to explore the impact of Sunday's announcement on homeownership, taxpayers, and market stability. Mr. Dodd said he planned to meet with Mr. Paulson yesterday to discuss the issue.

"I hope to get a fuller examination of where all of this is and where we're going with this," Mr. Dodd said.

The action to create a conservatorship leaves open an option, favored by former chairman of the Federal Reserve, Alan Greenspan, to split up and sell off Fannie and Freddie or nationalize the companies to cement the government's role in mortgage markets. Avoiding a decision on those steps enhances the likelihood Congress will support the emergency action, Senator Schumer said.

The FHFA, which will run the conservatorship, ejected the chief executive officer of Fannie, Daniel Mudd, 50, and the CEO of Freddie, Richard Syron, 64. They were replaced by the former CEO of TIAA-Cref, Herbert Allison, 65, and David Moffett, 56, who was a US Bancorp vice chairman.

"The problems of Fannie and Freddie weren't created by these two CEOs, they go back a long time," Mr. Dodd said in a Bloomberg Television interview. "Where were the regulators? Why weren't people stepping up? How did this housing problem expand into the broader economic problems we're seeing today?"