By Jessica Holzer
The Hill.com

U.S. Treasury Secretary Henry Paulson on Tuesday voiced doubt about lifting the portfolio caps on Fannie Mae and Freddie Mac, calling such demands a “red herring” that would do nothing to ease the turmoil in the credit markets or help borrowers at risk of losing their homes.

He urged the Senate to start moving on legislation to reform Fannie and Freddie, known collectively as government sponsored enterprises (GSEs), and said he favored allowing them to take on more risk, but only in the context of reform.

“The Senate has got more work to do,” Paulson told a press gathering arranged by The Christian Science Monitor. “I think the Senate can get this done, and do it quickly, and we can all work together.”

Sen. Chris Dodd (D-Conn.) and Rep. Barney Frank (D-Mass.), the heads of the Senate and House banking panels, have repeatedly called on the Bush administration to lift the temporary caps on the GSEs- portfolios to inject liquidity into the troubled mortgage market.

There is heated speculation among investors that the administration will comply, but President Bush has so far resisted the appeals

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