Paulson seen cool to shield Fannie/Freddie investors

WASHINGTON (Reuters) - U.S. Treasury Secretary Henry Paulson is insisting that if Fannie Mae and Freddie Mac need rescuing, the plan should not benefit shareholders of the giant mortgage finance firms, the Wall Street Journal said on Saturday.

Citing people familiar with the matter, the newspaper said a possible intervention by the Bush administration to help the government-sponsored mortgage enterprises could happen as early as Monday morning.

That is around the time Freddie Mac is due to sell $3 billion (1.5 billion pounds) worth of short-term debt, a barometer of market appetite for its securities.

A Treasury Department spokesman called the article "thinly sourced speculation" but declined to elaborate.

Paulson indicated on Friday the administration had no plans to nationalize the congressionally chartered but privately owned companies, which finance nearly half of U.S. homes.

Shares of Fannie Mae and Freddie Mac, trading at a fraction of their value a year ago, fell sharply this week as fears mounted they would not have enough capital to make it through the worst U.S. housing crisis since the Great Depression.

Home foreclosures, falling prices, tighter credit for buyers and the overall state of the U.S. economy have become major issues in the campaign for the presidential and congressional elections in November.

Fannie Mae and Freddie Mac said on Friday their finances were sound enough to withstand the housing crisis and government officials scrambled to make statements to restore confidence in them.

The abrupt erosion of the share values of the two companies raised the spectre of a government rescue operation similar to the sale in March of failing investment bank Bear Stearns.