July 22, 2008 – 12:34 p.m.
Throwing a lifeline to Fannie Mae and Freddie Mac could cost the federal government $25 billion over the next two fiscal years, though chances are “probably better than 50 percent” that a bailout won’t be necessary, congressional budget analysts said Tuesday.
The Congressional Budget Office based its cost analysis on a number of possibilities, including a further deterioration of the housing and financial markets that would require the federal government to step in and prop up Fannie and Freddie.
The non-partisan analysis explored various scenarios under the administration plan, which would allow the government to open new credit lines and buy equity in the mortgage giants if their financial soundness is threatened.
CBO Director Peter R. Orszag told reporters there was a “5 percent chance that additional losses could total more than $100 billion” at Fannie and Freddie.
Worried that a collapse of either company could cause a worldwide crisis in debt markets, Treasury Secretary
Share prices for the two companies have been battered in recent weeks, as Wall Street investors fretted about their stability in the current real estate downturn.
The CBO report is likely to figure prominently in the debate as Congress considers the administration plan this week as part of a larger housing package.
The bill includes several landmark pieces of legislation: an overhaul of the Federal Housing Administration, an FHA-led program to help borrowers refinance out of mortgages they can’t afford and the creation of a new regulator for Fannie and Freddie.
Lawmakers are still putting finishing touches on the package, including limits on the new Treasury authority to back Fannie and Freddie.
The White House has reaffirmed a veto threat against the housing package, objecting to $3.9 billion in community development block grant funds to allow states to buy and rehabilitate foreclosed homes.
Still, many Democrats doubt the president would actually veto the package, given the ongoing housing slump and the inclusion of numerous White House priorities in the bill.