WASHINGTON – House Democrats, moving to accomplish a top priority in exchange for quick approval of the Bush administration's urgent rescue plan for Fannie Mae and Freddie Mac, intend to tie it to $3.9 billion in grants for neighborhoods hit hardest by foreclosures.

President Bush, who on Tuesday called for swift enactment of the rescue for the troubled government-sponsored mortgage companies as part of a broad housing package, has threatened to veto the bill if it includes the neighborhood grant money.

But Democrats, who saw their negotiating hand strengthened when the administration came to Congress this week for authority to help Fannie Mae and Freddie Mac, are gambling that Bush will back down on his veto threat at a time of turmoil in the housing market.

The administration's proposal to give the Treasury Department the power to extend an unlimited line of credit to Fannie Mae and Freddie Mac and buy their stock if necessary is “a whole new, big thing” to add to the housing measure, said Rep. Barney Frank, D-Mass, the House Financial Services Committee chairman. “We're in a position of Democrats saying, 'We're doing a lot for the investment community. What are we getting?'”

The neighborhood grants money was contained in a Senate-passed version of the housing bill. The House approved a similar $15 billion proposal when it passed its housing package in May. The grants would go to areas hardest hit by the housing crisis to buy and rehabilitate foreclosed properties.

Democrats argue that the money is crucial to preventing neighborhood blight, while Bush calls it a bailout for lenders who helped cause the mortgage meltdown.

Frank said the House would vote next Tuesday on adding the help for Fannie Mae and Freddie Mac to a housing bill aimed at saving as many as 400,000 homeowners from foreclosure. The Senate is expected to follow soon after, clearing the package for Bush's signature. That's despite concern by some Republicans that the bill is a fast-growing taxpayer bailout.

Bush and Treasury Secretary Henry Paulson on Tuesday defended the proposal to boost market confidence in Fannie Mae and Freddie Mac, as lawmakers rushed to resolve key disputes on the broader housing package, including Bush's veto threat.

At the same time, House Republican leaders – already vehemently opposed to a mortgage rescue they call a government giveaway to irresponsible homeowners and unscrupulous lenders – called for hearings on the new proposal to shore up Fannie Mae and Freddie Mac.

They said it shouldn't be linked to the housing measure, which Minority Leader John Boehner, R-Ohio, called “a multibillion-dollar taxpayer-funded bailout bill.”

The centerpiece of the measure would let the Federal Housing Administration back as much as $300 billion in new mortgages for strapped homeowners – many of them subprime borrowers who owe more than their homes are worth – so they could refinance at more affordable, fixed rates. It also creates a new regulator and tighter controls on the two huge companies.

The Bush administration and the Federal Reserve announced an emergency rescue plan Sunday to bolster Fannie Mae and Freddie Mac, which hold or guarantee more than $5 trillion in mortgages – almost half of the nation's total.

In his first White House news conference since April, the president said the two troubled mortgage companies play a central role in the nation's housing-finance system, and that government action to help them was not a bailout because the two would remain shareholder-owned.

“I don't think the government ought to be involved in bailing out companies,” Bush said.

House Democratic leaders, who have tussled with the administration all year on the housing measure, see the urgent request to bolster Fannie Mae and Freddie Mac as a welcome locomotive behind the bill.

“At long last, he's calling upon Congress to pass this legislation,” House Speaker Nancy Pelosi, D-Calif., said of Bush.

The president, who initially denounced the FHA rescue as too burdensome on the government and risky for taxpayers, now has just a handful of objections, including to the neighborhood grants.

Democrats still must find a way to offset the $3.9 billion cost with tax hikes or spending cuts, at the insistence of conservative “Blue Dog” Democrats who refuse to support anything that would swell the deficit.

Paulson is acting as Bush's pointman on finalizing the package, as he did earlier this year when he teamed with Pelosi and Boehner to strike a deal on a stimulus measure that sent $600 to $1,200 rebates to most wage earners.

Summoned to Capitol Hill to detail the Fannie Mae and Freddie Mac backstop proposal, Paulson said the government had no plans to use the authority, but that by giving Treasury the power, Congress would help calm financial markets and thus protect taxpayers from ultimately being on the hook to pay for a massive rescue.

“This is a backup facility that hopefully will never be used,” Paulson told the Senate Banking Committee. “We think this is the best way to limit the cost to the taxpayer.”

Lawmakers in both parties voiced reservations about the proposals, questioning how they would impact taxpayers.

They “raise serious questions,” said Sen. Christopher Dodd, D-Conn., the Banking Committee chairman, “about the nature of the economic crisis facing our nation, about the ability of these proposals to address this crisis effectively, and about the burden that the American taxpayer potentially is being asked to carry.”

“We have to be responsible to the taxpayer for what we have done,” said Sen. Jim Bunning, R-Ky., who called Treasury's request a blank check. “I'll do everything I can to stop it.”

Some GOP budget hawks, however, said they accepted Paulson's argument that the best way to insulate taxpayers from exposure was to assure the markets that the government would bolster Fannie Mae and Freddie Mac.

“The more we make it clear that the government is willing to stand up and deliver appropriate actions to accomplish that viability, the less the government is going to have engage with dollars,” said New Hampshire Sen. Judd Gregg, the senior Budget Committee Republican. “But if the market concludes that we are unwilling as a government to step forward and ... take the action necessary to maintain these entities in a reasonably solvent structure, then the market will react very negatively and as a result, then we'll have to step in with huge amounts.”

Associated Press writer Laurie Kellman contributed to this report.