The secretary said he expected the administration's plan to aid mortgage guarantors Freddie Mac and Fannie Mae to be approved by Congress.
Fearful about loan defaults, investors have in recent weeks rapidly sold off shares in Freddie Mac and Fannie Mae, which together own or guarantee nearly half of the nation's $12 trillion in mortgage debt.
That led Paulson to step forward with a plan to bolster the companies by significantly increasing their ability to borrow from the government and allowing the Treasury Department to acquire stakes in both.
"We need to make sure that they have access to adequate capital to get through this period and get through this period in a way which is going to help us return to a stable housing market," Paulson said.
Even less clear was the fate of distressed banks such as IndyMac.
IndyMac's downward spiral begun in August, when Wall Street lost interest in buying the home lender's specialty product -- jumbo-sized "alt-A" mortgages made to borrowers who didn't fully document their earnings or assets. With those faltering loans stuck on IndyMac's books, regulators told the institution it would need a bigger cash cushion to offset any extra losses that might ensue.
But with IndyMac losing more than $709 million in the final two quarters of last year, the Office of Thrift Supervision and the FDIC began a complete evaluation of its Icondition in January .
"We were not pleased with what we saw," said Scott M. Polakoff, senior deputy director of the OTS, the Treasury Department agency that serves as chief regulator for S&Ls such as IndyMac.
That led IndyMac to try to scale back, firing thousands of employees and making more traditional loans. But its ratio of nonperforming to healthy assets kept growing, forcing it to set aside huge allowances for losses -- $483 million as of March 31, up from $68 million a year earlier. It lost $184 million in the first quarter of this year.
Regulators were encouraged in the second quarter, when IndyMac reported that other firms had expressed interest in investing in or buying the thrift and were on site to review its books and be briefed on its businesses.
The bank "was clearly distressed," said the OTS' Polakoff. "And they were looking for someone to come forward to help it."
But despite IndyMac's efforts to remain solvent, starting in late June depositors withdrew $1.3 billion in 11 days. Federal regulators began to fear the bank could run out of cash and decided to take it over.
