Dec. 17 (Bloomberg) -- Treasury Secretary Henry Paulson said Fannie Mae and Freddie Mac, the largest sources of finance for American mortgages, may help ``jump start'' the market for the largest home loans.

Paulson said in an interview today that he favors temporarily allowing the two companies to purchase so-called jumbo loans, which exceed $417,000. He said the proposal should be part of a package of legislative changes governing the two government chartered companies.

The Treasury chief spoke during a tour of three states to discuss the Bush administration's efforts to ease the subprime mortgage crisis. Paulson has come under fire from Democrats in Congress for not acting quickly enough to help Americans at risk of defaulting after home prices slid and borrowing rates jumped.

``We would be for lifting the limits for Freddie and Fannie on a temporary basis,'' Paulson said in Orlando, Florida. ``As I talked to members of Congress, I am hearing less and less resistance to reforming the GSEs.''

Lawmakers including Democratic Senator Charles Schumer of New York have called on the Office of Federal Housing Enterprise Oversight to ease the constraints on Freddie Mac and Fannie Mae, allowing them to buy more home loans and help mitigate the worst U.S. housing slump in more than 16 years. The two own or guarantee about 40 percent of the $11.5 trillion U.S. home-loan market.

Bernanke View

Paulson said he agreed with Federal Reserve Chairman Ben S. Bernanke, who suggested to lawmakers that they consider allowing Fannie Mae and Freddie Mac into the jumbo mortgage market. ``I think Ben Bernanke and I are on the same page,'' Paulson said.

Bernanke indicated in a Nov. 8 hearing that he favored letting Fannie Mae and Freddie Mac buy mortgages of up to $1 million. He noted that it was up to Congress to determine the amount.

After a speech in Orlando, Paulson said in response to a question that it would be ``bad public policy'' to raise Fannie and Freddie's jumbo mortgage limits ``forever.'' He expressed confidence that Congress will pass legislation overhauling the Federal Housing Administration.

``We're getting very little pushback on this right now because I think given what's happened, everybody understands how important it is,'' Paulson said.

Reviewing Regulations

Ofheo Director James Lockhart last week said the regulator will begin considering the removal of a 30 percent excess reserve capital rule when the companies release 2007 results in February as a way of giving them freer rein for making loans.

The Treasury chief rejected suggestions made by former Fed Chairman Alan Greenspan favoring the use of government money to rescue Americans at risk of losing their homes. Paulson earlier this month helped negotiate a freeze on the interest rates of some subprime borrowers.

``This program is attempting to prevent a market failure and do so without government money,'' he said. ``We are not touching the contracts in place.''

Paulson is on a tour of Orlando, Kansas City, Missouri, and Stockton, California, three cities that he said in a speech today have been afflicted by the subprime crisis.

Subprime loans were marketed mostly to borrowers with little or poor credit history. Many had adjustable rates, with low starter rates for two or three years that increased later. Fed officials have recognized that some of the loans were the product of ``lax'' lending standards.

Mortgage Rate Freeze

Paulson on Dec. 6 announced a plan negotiated with lenders and other regulators to help as many as 1.2 million people keep their homes. The agreement was aimed at borrowers who couldn't afford their mortgages after they reset higher.

The Treasury chief also today praised a plan by Citigroup Inc. to take over seven of its troubled investment funds and assume $58 billion of debt to avoid forced sales of assets. The action by Citigroup follows HSBC Holdings Plc, Societe Generale SA and WestLB AG in bailing out their structured investment vehicles.

The moves, which may reduce the urgency for a Treasury- brokered bailout led by Citigroup, Bank of America Corp. and JPMorgan Chase & Co., show that banks are ``well capitalized,'' Paulson said.

``The private sector is still working and making progress on that,'' he said. ``There are a number of initiatives that are complimentary. There is no one action that is a silver bullet.''

He didn't repeat past remarks that he expected the so- called master liquidity enhancement conduit, or M-LEC, to be established by year-end.

To contact the reporters on this story: Kathleen Hays in New York at Khays4@bloomberg.net; John Brinsley in Washington at jbrinsley@bloomberg.net

Last Updated: December 17, 2007 16:29 EST