Fannie, Freddie Bailout May Have $25 Billion Tag

WASHINGTON(Reuters) – Congressional budget analysts on Tuesday put a $25 billioncost estimate on a Bush administration plan to bolster mortgage financegiants Fannie Mae and Freddie Mac, but raised questions about a keyassumption underlying the plan.

The Congressional Budget Office said the estimated cost to taxpayerswould be incurred over 2009 and 2010, if Congress approves the planproposed by Treasury Secretary Henry Paulson amid a deep slump in theU.S. housing market.

Paulson has said he does not expect Fannie Mae or Freddie Mac wouldever need to draw on the line of credit that he wants to extend to themas a signal that the government will stand behind the nation’s largestmortgage finance companies.

CBO estimated there is a "probably better than 50 percent" chancethat the proposed new Treasury authority would not be used before itexpired 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 significantlikelihood that conditions in the housing and financial markets coulddeteriorate more than already reflected on the GSEs’ balance sheets,and such continuing problems would increase the probability that thisnew authority would have to be used."

The nonpartisan budget analysis office issued its cost estimate aslawmakers this week were working on completing a sweeping package ofhousing market rescue legislation.

Critics have said Paulson’s plan is too open-ended and could costtaxpayers too much, while supporters have stressed the need forreassuring markets of the government’s willingness to stand behind thecompanies.

The stock prices of both Fannie and Freddie dropped sharply lastweek on market uncertainty over whether they would be able to ride outthe housing market slump. Both stocks recovered in recent days, butdropped again on Tuesday shortly after the CBO estimate came out.

Fannie and Freddie together hold or guarantee just under half of theUnited States’ $12 trillion in outstanding home mortgage debt.

(Reporting by Richard Cowan and Kevin Drawbaugh; Editing by Jonathan Oatis)