Wednesday, July 23, 2008
The Bush administration's plan to prop up troubled mortgage-finance giants Fannie Mae and Freddie Mac is likely to cost taxpayers less than $25 billion, Capitol Hill's chief budget analyst said yesterday. But there is an outside chance that a further collapse in the housing market could require an infusion of $100 billion or more.
In a letter to lawmakers, Peter R. Orszag, director of the Congressional Budget Office, also said there is "a significant chance -- probably better than 50 percent" -- that federal officials would never have to use the authority to loan the firms money or buy their stock.
"There is significant uncertainty involved here," Orszag told reporters. The cost "could be zero. It could be $100 billion."
The newly drafted legislation, released last night, contained at least one major surprise that could stir opposition. The protections for taxpayers promised by the Bush administration and senior lawmakers were not specified, but were left to the Treasury to define.
Supporters of the rescue proposal, which is included in a massive package of housing legislation that could be put to a vote in the House as soon as today, hailed Orszag's analysis as a heartening endorsement of the administration's position that Fannie Mae and Freddie Mac remain financially sound despite a sharp drop in share prices and are unlikely to require a federal bailout.
"There's a better than 50 percent chance that the cost will be zero," said Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee and one of the chief sponsors of the housing package. Orszag's analysis "will help deflate the crazy claims" that a bailout could put taxpayers on the hook for trillions of dollars.
But critics of the plan dismissed the analysis. "Everyone knows it's just a wild guess," said Sen. Jim DeMint (R-S.C.), who vowed to force hours of debate on the legislation when it reaches the Senate. "We're either going to spend zero or we're going to spend a whole lot more than we're talking about here."
The cost estimate had been eagerly awaited by lawmakers, who were putting the finishing touches yesterday on the 600-page housing package, Washington's most ambitious response to a housing crisis that has spawned more than 1.5 million foreclosures and a steep drop in house prices.
The legislation includes a variety of provisions aimed at halting that slide, including a tax break for first-time homebuyers worth up to $7,500 and a plan to rescue more than 400,000 families at risk of foreclosure. It also creates a strong new regulator for Fannie Mae and Freddie Mac, government-chartered but shareholder- owned enterprises that back more than half of all outstanding home mortgages.
The White House has threatened to veto the measure, saying it opposes a provision that would provide nearly $4 billion to communities hardhit by foreclosures to purchase vacant properties. But the administration is lobbying hard for the rescue plan for the mortgage firms. Treasury Secretary Henry M. Paulson Jr. yesterday urged Congress to quickly approve the package during a luncheon meeting with Senate Republicans and during a speech earlier in the day in New York.
The firms' continued operations are "central to the speed with which we emerge from this housing correction," Paulson told a gathering at the New York Public Library. "Because of their size and scope, Fannie and Freddie's stability is critical to financial market stability. Investors in our nation and around the world need to know that we understand how important these institutions are to our capital markets broadly and to the U.S. economy."
Critics of the proposal say there are too few protections for taxpayers, and that it sets no limit on how much Treasury may spend to shore up what are essentially private firms.