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"They have extraordinary powers and exercise them in a muscular way," said former Rep. Jim Leach, R-Iowa, who fought years ago to try to rein in the two companies' influence and growth. The former House Banking Committee chairman said the government should throw them a lifeline -- but with a line of credit conditioned on full repayment plus a premium, as it did in loans that helped rescue Chrysler and Mexico.

Paulson on Sunday announced a plan to create a line of credit for Fannie and Freddie with an unspecified limit for 18 months and to give the Treasury authority to buy stock in the two companies.

The help for Fannie and Freddie is expected to be added to a broad housing bill scheduled for a House vote next week. Bush earlier threatened a veto over another part of the legislation.

House Speaker Nancy Pelosi, D-Calif., said Thursday she believes he will accept the measure, even with the provision he opposes, which is not related to the Fannie-Freddie issue. "The president is asking us to do something quite significant to address this housing crisis, which has long been neglected by his administration. ... I don't think the president is going to veto this bill," she told reporters.

The two companies defend their past actions and their financial integrity and say the current housing crisis will pass.

"Clearly there's some tough slogging ahead. We've got some challenges in the home ownership market to work through," said Fannie's CEO, Daniel Mudd.

Mike House, a lawyer-lobbyist who is executive director of FM Policy Focus, a financial watchdog coalition that monitors the two government-chartered mortgage companies, said the preferential treatment that Fannie and Freddie have enjoyed "came about because it was a strategy on their part, executed over a number of years."

"I think the original purpose (of Fannie and Freddie) is one that is needed in the marketplace," said House. "And I think that the legislation that is moving through Congress will provide strong regulatory oversight and will make sure everything is done in a balanced way."

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