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Bailing Out Mortgage Giants Could Cost $25 Billion

The Associated Press

Congress is expected to vote this week on a housing measure that would give the Treasury Department authority to throw Fannie Mae and Freddie Mac a temporary lifeline.

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The Associated Press

Published: July 23, 2008

WASHINGTON - A federal rescue of troubled mortgage giants Fannie Mae and Freddie Mac could cost taxpayers as much as $25 billion, Congress' top budget analyst said.

But Peter R. Orszag, director of the Congressional Budget Office, predicted in a letter to lawmakers that there's a better than even chance the government will not have to prop up the companies by lending them money or buying stock.

Congress is expected to vote this week on a housing measure that would give the Treasury Department authority to throw Fannie and Freddie a temporary lifeline.

Treasury Secretary Henry M. Paulson, who has been pressing for the power, says it's intended as a backup plan to help calm investors and stabilize financial markets.

Orszag said it's most likely the companies will remain afloat, and the government won't have to put up any money, but there's a very small possibility that Treasury will have to step in to help cover losses at Fannie and Freddie topping $100 billion.

"It is arguable that if it were not enacted at this point, that the consequences could be quite severe," he said.

Treasury officials confirmed that bank examiners from both the Federal Reserve and the Office of the Comptroller are currently inspecting the books at both Fannie Mae and Freddie Mac. Paulson said in an interview published Tuesday in the New York Times that he believed the results would provide an important signal of confidence for the markets.

Critics have charged that the open-ended offer of support for Fannie and Freddie exposes taxpayers to billions of dollars of losses.

Rep. Jeb Hensarling, R-Texas, said the companies should be privatized as part of any plan to rescue them.

However, many lawmakers in both parties regard a lifeline for the companies as vital to restoring market stability.

"Freddie and Fannie are important mainstays in the American economy, and we need to find solid footing for these enterprises before the economy can recover, right itself, and get back on track," said Sen. Judd Gregg of New Hampshire, the top Budget Committee Republican.

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