July 17 (Bloomberg) -- U.S. Representative Barney Frank, the Democrat who heads the House panel overseeing housing, aims to tie the Treasury's plan to aid Fannie Mae and Freddie Mac to the federal debt limit, placing a potential constraint on the help.

It's ``very clear,'' lawmakers won't support exempting the rescue from the debt limit, said Frank, the chairman of the House Financial Services Committee. ``The fact that any expenditure under this bill would be subject to the debt limit is a cap in effect on the amount,'' he said. Such a cap will limit taxpayer liability, he said.

The debt limit is $9.815 trillion and the current outstanding public debt subject to that limit is about $9.4 trillion, according to the Treasury Department.

Treasury Secretary Henry Paulson met with lawmakers at the U.S. Capitol for the second consecutive day today in a bid to secure support in Congress for the rescue plan, which may be voted on next week.

Paulson said he expects to reach ``a very acceptable result'' next week in negotiations with lawmakers on his plan to aid mortgage buyers Fannie Mae and Freddie Mac.

``I feel even better than I did yesterday in my confidence level that we will come to a very acceptable result, and come to it next week,'' Paulson told reporters today in Washington after meeting with Frank.

Amount of Aid

Paulson has said that an ``unspecified'' amount of aid would best help restore confidence in them. Paulson is seeking authority to make unlimited equity purchases in Fannie Mae and Freddie Mac and the right to make ``unspecified'' increases in their lines of credit.

Frank said he doesn't expect the plan to incur significant costs for taxpayers because it will spur investor confidence in the lenders, limiting the need for public money.

Louis Crandall, chief economist at Wrightson ICAP LLC, a Jersey City, New Jersey-based research firm, said Paulson has ``been very focused on making sure that there are no unintended constraints that might raise unwanted questions about the adequacy of the Treasury backstop.''

House Minority Leader John Boehner, an Ohio Republican who proposed delaying consideration of the plan so that lawmakers could have more time to study it, said yesterday there's no question ``that this will become law and become law very soon.''

Build Confidence

The proposals are meant to restore confidence in the government-chartered companies, which together own or guarantee about half the $12 trillion of U.S. home loans outstanding.

Anthony Ryan, Treasury's acting under secretary for domestic finance, said the proposals are ``wholly consistent'' with a focus on capital-market stability.

``We don't see the need for them to have to access additional liquidity or capital, but if they did, it certainly would send a strong signal to the marketplace that they have the resources to do so,'' Ryan said in an interview today on CNBC.

Paulson met yesterday with Senate Banking Committee Chairman Christopher Dodd and Alabama Senator Richard Shelby, the top Republican on the banking panel, to try to address concerns that Treasury would have too much power under the plan. Paulson declined to comment upon leaving that meeting.

`Positive Meeting'

``We had a very positive meeting, and think it's going in the right direction,'' Shelby said after the session. ``We're trying to do it right.''

Washington-based Fannie Mae and McLean, Virginia-based Freddie Mac have lost more than 70 percent of their stock market values this year on concern they don't have enough capital to survive the biggest housing slump since the Great Depression.

Lawmakers from both parties raised questions about how much authority Treasury should have.

``I want to make darn sure that, if we do this, that the American taxpayer is going to be protected,'' Dodd said earlier yesterday.

Paulson said yesterday he emphasized with lawmakers that Treasury's authority would be temporary.

This issue is ``tough,'' Paulson said. ``There's never unanimity, but I'm feeling very good as a result'' of meetings today, he said.

Representative Jeff Flake, an Arizona Republican, said Paulson received a ``mixed'' reception from lawmakers.

``Everybody knows something has to be done. It's just a question of what are we willing to accept,'' Flake said.

Companies' Objectives

Congress created Fannie Mae and Freddie Mac to expand homeownership by increasing mortgage financing and to provide market stability. The shareholder-owned companies make money by holding mortgage assets and on guarantees of mortgage-backed securities they create out of loans bought from lenders.

Debt from the government-sponsored enterprises ``is globally held in extensive amounts so we want to reassure that market that we understand the importance of this,'' Dodd said. ``And simultaneously, we need to reassure the American taxpayer that they're not going to be exposed to a massive bill at the end of the day. So striking that balance is what I'm trying to achieve.''

Frank has suggested prohibiting the companies from paying dividends if they tap a proposed increased line of credit with the Treasury. He also said regulators should be required to approve the compensation for top executives of Fannie Mae and Freddie Mac.

House Democrats postponed a vote on the rescue plan until early next week. Paulson had initially pushed for a vote this week.

Lawmakers plan to graft the rescue plan onto a pending housing bill that would allow thousands of Americans struggling with subprime loans to refinance into fixed-rate mortgages backed by the government. The measure would also install tougher regulators for Fannie Mae and Freddie Mac.

To contact the reporter on this story: Brian Faler in Washington at bfaler@bloomberg.net

Last Updated: July 17, 2008 18:41 EDT