WASHINGTON, US - UNITED States 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.

Citing people familiar with the matter, the newspaper said on Saturday 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 US$3 billion (S$4 billion) worth of short-term debt, a barometer of market appetite for its securities.

Mr Paulson indicated on Friday the administration had no plans to nationalise the congressionally chartered but privately owned companies, which finance nearly half of US 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 US housing crisis since the Great Depression.

Home foreclosures, falling prices, tighter credit for buyers and the overall state of the US 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.

One analyst said the crisis of confidence points to risks associated with having two large private firms play such a central role in US housing markets.

'What they do is more needed than ever,' said Mr Richard Bove, an analyst with Labenburg Thalman. 'Get rid of them and create new structures that will perform their functions more efficiently, with more accountability and without the distraction of the equity markets.'

The Wall Street Journal said Mr Paulson does not want to help shareholders of Fannie Mae and Freddie Mac because it would create 'moral hazard' - encouraging greater risk-taking because of an expectation of a government safety net.

Mr Paulson took a similar stance during the Bear Stearns intervention, arguing the government's role in facilitating the firm's sale was needed to prevent broader economic carnage but that its shareholders should be hit financially.

But any intervention could benefit bondholders by strengthening perceptions of government backing of the firms.

'Equity holders would suffer greatly while the position of senior debt holders would actually be enhanced by the more explicit government support,' JPMorgan analysts Alex Roever and Cie-Jai Brown wrote in a note to clients. -- REUTERS