A Bush-administration plan top help bailout suffering mortgage backers Fannie Mae and Freddie Mac is being closely examined by Congressional budget analysts and economists. Will taxpayers end up fitting the bill for the crisis?WASHINGTON
(Reuters) - Congressional budget analysts on Tuesday put a $25 billion
cost estimate on a Bush administration plan to bolster mortgage finance
giants Fannie Mae and Freddie Mac, but raised questions about a key
assumption underlying the plan.
The Congressional Budget Office said the estimated cost to taxpayers
would be incurred over 2009 and 2010, if Congress approves the plan
proposed by Treasury Secretary Henry Paulson amid a deep slump in the
U.S. housing market.
Paulson has said he does not expect Fannie Mae or Freddie Mac would
ever need to draw on the line of credit that he wants to extend to them
as a signal that the government will stand behind the nation's largest
mortgage finance companies.
CBO estimated there is a "probably better than 50 percent" chance
that the proposed new Treasury authority would not be used before it
expired at the end of December 2009."
"Under that scenario, the temporary authority would not be used and thus would involve no budgetary cost," it said.
But, CBO added, "That scenario is far from the only possible result.
Indeed, many analysts and traders believe that there is a significant
likelihood that conditions in the housing and financial markets could
deteriorate more than already reflected on the GSEs' balance sheets,
and such continuing problems would increase the probability that this
new authority would have to be used."
The nonpartisan budget analysis office issued its cost estimate as
lawmakers this week were working on completing a sweeping package of
housing market rescue legislation.
Critics have said Paulson's plan is too open-ended and could cost
taxpayers too much, while supporters have stressed the need for
reassuring markets of the government's willingness to stand behind the
companies.
The stock prices of both Fannie and Freddie dropped sharply last
week on market uncertainty over whether they would be able to ride out
the housing market slump. Both stocks recovered in recent days, but
dropped again on Tuesday shortly after the CBO estimate came out.
Fannie and Freddie together hold or guarantee just under half of the
United States' $12 trillion in outstanding home mortgage debt.
(Reporting by Richard Cowan and Kevin Drawbaugh; Editing by Jonathan Oatis)
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