Troubled mortgage assets purchased by Wall Street are clogging financial markets, choking off the flow of credit and preventing banks and other financial institutions from financing productive loans, a sober Paulson told reporters at a brief press conference.

“I am convinced that this bold approach will cost American families far less than the alternative, ­ a continuing series of financial institution failures and frozen credit markets unable to fund economic expansion,” Paulson said in a prepared statement.

“This is what we need to do,” Paulson told one reporter in response to a question about whether there were alternatives. He said until the U.S. gets stability in the housing market, it will not get stability in the financial market.

Paulson took only three questions from reporters, which he answered briefly, after reading a two-page statement. “Hope you got a lot of sleep last night,” he joked before reading his statement.

Paulson offered few details of the plan for a new federal program, which he said he would spend the weekend working on with members of Congress from both parties. He said Treasury would come to congressional leaders with legislation, and then “flesh out the details.”

“We’re going to be asking them to take action on legislation next week,” he said.

Congressional leaders offered support for the concept Thursday night during a meeting with Paulson and Federal Reserve Chairman Ben Bernanke in Speaker Nancy Pelosi’s (D-Calif.) office.

The stock market rose 400 points Friday morning as the government announced a series of steps it would immediately take to increase confidence. This included emergency action by the Securities and Exchange Commission to temporarily prohibit “short selling” of financial stocks, which SEC Chairman Chris Cox said would “restore equilibrium” to markets.

Short selling, in which investors borrow a stock, sell it and then make money when the price of the stock falls, has contributed to the recent sudden price declines in the securities of financial institutions unrelated to true price valuation, according to the SEC. 

Paulson said mortgage giants Fannie Mae and Freddie Mac, which the government bailed-out earlier this month, would increase their purchases of mortgage-backed securities in order to provide more funding to mortgage markets. Treasury also will expand the mortgage-backed securities purchase program it announced earlier this month, Paulson said.

In addition, Treasury announced on Friday the establishment of a “temporary guaranty program for the U.S. money market mutual fund industry.”  Money markets, considered a safe investment, have experienced massive withdrawals in recent days as the financial crisis has intensified.

Paulson described these moves as “tactical steps to increase confidence in the system,” but said more was needed. “We must now take further, decisive action to fundamentally and comprehensively address the root causes of our financial system’s stresses.”

The Treasury Department held a conference call with House Republicans to address concerns about the rising financial crisis on Friday, sources said. 

House GOP lawmakers have been publicly critical of the administration this week for failing to inform them about the $85 billion bailout given to American International Group on Tuesday evening. 

“There has been a lack of communication,” Boehner told reporters on Thursday, adding that a meeting of the Republican Conference was cancelled Thursday morning because the administration failed to send a representative to meet with lawmakers. 

The stock market rose about 400 points when it opened Friday morning.

Jackie Kucinich contributed to this report.