July 15 (Bloomberg) -- Representative Barney Frank, the Democrat who chairs the House panel overseeing housing, aims to include penalties for Fannie Mae and Freddie Mac in legislation authorizing a rescue of the beleaguered mortgage firms.

The companies would be barred from paying dividends if they tap a proposed increased line of credit with the Treasury, Frank, of Massachusetts, told reporters today in Washington. Legislation, still being formed, will require regulators ``to approve'' the compensation for Fannie Mae and Freddie Mac's top executives to ensure it's ``reasonable,'' he said.

Frank's comments reflect efforts by lawmakers to introduce conditions on Treasury Secretary Henry Paulson's request for unlimited power to provide capital for the two companies. Legislators from both parties told the Treasury chief today they're concerned his plan would grant unprecedented authority without sufficient scrutiny from Congress.

Members of Congress ``began to appreciate that they were giving a blank check to the Treasury,'' said Andrew Laperriere, managing director at International Strategy & Investment Group, a money management and research firm in Washington. ``They were uncomfortable with that,'' and won't rush to approve Paulson's plan, he predicted.

The House is working on including a rescue plan for the government-sponsored enterprises in an existing bill that would set up a new regulator for the firms and guarantee refinanced mortgages for struggling homeowners. The bill would then go to the Senate.

Paulson's Plan

Paulson sought the authority to make ``unspecified'' purchases of Fannie Mae and Freddie Mac equity, and to increase their credit lines with the Treasury from $2.25 billion each, after the firms' shares cascaded lower this month.

The House legislation will specify that any government purchase of shares be of ``very preferred stock'' in order to ensure it's first in line for any company payments, Frank said.

``We are going to get paid before anybody else gets paid,'' said Frank. The goal is to protect taxpayers, he said.

Frank's Senate counterpart, Christopher Dodd of Connecticut, complained to Paulson at today's hearing that the only limit included in his plan was the ``duration.'' The Treasury's proposals would last through the end of next year.

``I'm uneasy about giving this blanket authority without having any kind of checks,'' Senate Banking Committee Chairman Christopher Dodd said in a Bloomberg Television interview today. Senator Richard Shelby, the committee's top Republican, told reporters ``I've never known Congress'' to give ``an open-ended blank check for somebody to fill in.''

Seeking `Accountability'

Republican Senator Chuck Hagel of Nebraska said at the Senate hearing that ``I'm looking for accountability.''

Fannie Mae CEO Daniel Mudd, 49, was paid $11.6 million in salary, stock awards and other compensation last year. Freddie Mac Chief Richard Syron, 64, received $18.3 million in total pay last year, though the value of both executives' stock awards has declined in the last year.

The companies' regulator already has some authority to review executive compensation to ensure it doesn't exceed industry standards.

Lawmakers' skepticism forced Paulson to stress he would protect taxpayer funds and assert his authority over Fannie and Freddie in case of a government intervention. Federal Reserve Chairman Ben S. Bernanke said Paulson would have the right to overhaul the companies' management under the Bush administration's proposals.

Worst Since 1980

Fannie Mae slid 27 percent, its biggest drop since at least 1980, to $7.07 in New York Stock Exchange composite trading, bringing its slump in the past week to 60 percent. Freddie Mac fell 26 percent to $5.26, and is down 61 percent from a week ago.

Moody's Investors Service cut the financial strength ratings of both companies and said credit losses jeopardize dividend payments.

Washington-based Fannie Mae has paid shareholders for three decades, while Freddie Mac, located in McLean, Virginia, increased its payout every year since 1990 before lowering the awards in November.

Fannie Mae has cut its dividend twice in the last 30 years, most recently reducing the quarterly payment from 50 cents to 35 cents in December. Freddie Mac had increased its payout every year since 1990 before halving it from 50 cents in November.

House Majority Leader Steny Hoyer, a Maryland Democrat, said today the chamber probably won't vote on the bill until next week, by July 22 ``at the latest.''

Republican Concerns

Frank's comments came as House Republicans expressed concern today about the legislation's potential cost. House Minority Leader John Boehner, along with No. 2 Republican Roy Blunt, said in a joint statement today that Democrats ought to hold hearings on the plan so lawmakers could have a better understanding of how it would work including its cost.

``There is little question that action is necessary, but there are also important questions that must be answered about the Treasury proposal before we act,'' they said. ``It would be irresponsible for Congress to provide the proposed new authority without due diligence on the mechanics of the Treasury proposal and its potential implications for taxpayers.''

Frank said he had not yet received a cost estimate for the legislation from the non-partisan Congressional Budget Office.

He also said he may retain provisions in the housing bill that the Bush administration has threatened to veto, which would send $4 billion to communities to buy up foreclosed properties.

``It's 4 billion lousy dollars,'' said Frank. Paulson ``raised the stakes'' by requesting the Fannie Mae and Freddie Mac rescue, ``and so are we,'' he said.

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

Last Updated: July 15, 2008 19:42 EDT