Fannie, Freddie Rescue Could Cost $25B

Analyst Says There's Less Than 50 Percent Chance That A Pricey Bailout Will Be Necessary

(CBS/ AP)  Congress' top budget analyst says a federal rescue of troubled mortgage giants Fannie Mae and Freddie Mac could cost taxpayers as much as $25 billion.

But Peter R. Orszag, director of the Congressional Budget Office, predicted in a letter to lawmakers Tuesday that there's a better than 50 percent chance the government will not have to step in to prop up the companies by lending them money or buying stock.

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

Treasury Secretary Henry M. Paulson, who has been pressing for the power, says the backup plan will help calm investors and stabilize financial markets.

Paulson said Tuesday that the continued operations of Fannie and Freddie - which guarantee or own almost half of the home mortgages in the country - would be "central to the speed with which we emerge from this housing correction."

Paulson made his comments in a speech in New York in which he again sought to reassure Americans that despite the recent turmoil, the nation's banking system is fundamentally sound.

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 of those examinations would provide an important signal of confidence for the markets.

After a period of market turbulence in which fears grew about the fiscal soundness of both institutions, the administration on July 13 unveiled a plan to provide unlimited government loans to the two mortgage giants and also to purchase stock in the two companies if needed. Paulson has stressed that the proposal is a backup effort that would be in effect for 18 months as a way to calm investor fears.

The administration and leaders in both the House and Senate have been in negotiations over the plan. Paulson predicted in his speech that Congress would "act to complete work on this legislation this week." The House is expected to vote on the support plan, which also includes a foreclosure rescue for 400,000 strapped homeowners, on either Wednesday or Thursday.

Democrats and Republicans queasy about a federal rescue of the mortgage giants are coalescing around the idea of letting the government slap limits on the multimillion-dollar pay packages of their executives.

Key lawmakers - puzzling over how to explain to constituents why they voted to bail out the troubled government-sponsored firms - see new curbs on compensation for the top officers as a crucial measure to cut down on the cringe factor.

At a time when Fannie Mae's and Freddie Mac's troubles have investors worried and the government ready to jump in with untold sums of cash, the lavish pay of the two companies' executives is increasingly difficult to defend, they say.

Sen. Bob Casey, D-Pa., says Fannie and Freddie "have had their hard-won credibility undermined in recent weeks," on the heels of major accounting scandals at the firms in 2003 and 2004.

"While the subprime mortgage crisis is hardly the fault of these companies, past practices of awarding huge bonuses and higher executive salaries calls into question the prudence of extending an unlimited credit line of taxpayer money to the companies whose management practices have been questionable over recent years," Casey said in a letter to Treasury Secretary Henry M. Paulson.

Casey called for capping the companies' executive pay "at reasonable levels" if they used the line of credit or need Treasury to step in and buy their stock. Casey also said their boards should sue to recover recent bonuses.

Last year, Freddie Mac paid Chairman and Chief Executive Richard Syron nearly $19.8 million in compensation even though the mortgage company's stock lost half its value. During the same period, Fannie Mae President and Chief Executive Daniel Mudd got compensation valued by the company at $12.2 million, including a $2.2 million bonus.

"I would like to know why taxpayers should extend Fannie and Freddie an unlimited line of credit at a time when their stock and investor confidence has fallen precipitously and their CEOs continue to make multimillion-dollar salaries and bonuses," Sen. Chuck Hagel, R-Neb., told Paulson in a letter last week.

Critics of Fannie Mae and Freddie Mac, including Republicans who question the very existence of government-sponsored mortgage companies, have long denounced the firms for richly compensating shareholders and executives in good times while relying on taxpayers and the government to prop them up should they falter.

With the request for a federal lifeline, though, even their biggest boosters are embracing the idea of scrutinizing pay packages.

Rep. Barney Frank, D-Mass., the House Financial Services Committee chairman, said a new regulator for Fannie Mae and Freddie Mac should have the power to approve executive compensation. Frank and Sen. Christopher J. Dodd, D-Conn., the Senate Banking Committee chairman, want to add the controls to a broad housing package that creates a new regulator.

Fannie Mae and Freddie Mac together hold or guarantee $5 trillion in mortgages - almost half the nation's total. Their stocks have plummeted on fears about their financial stability in a chaotic housing market where falling home values and rising defaults have contributed to large losses at the companies.

[dan_shields-2009]

why are we going to help the corporation that screwed people over? how about helping the people that got screwed!! as Judge Judy would say "RIDICULOUS!"

[txgrouch2006]

OneWorldUSA wrote
Take charge and tell them you''''re not paying the price for the criminals and if they want your business, they have to do it on YOUR terms, or you''''ll go elsewhere
-----------------
Good luck with that strategy. If you have "good credit," most lenders will assume YOU FAKED IT somehow. Why? BECAUSE THAT''S WHAT THEY USED TO DO TO ISSUE ALL THESE SUB-PRIME LOANS IN THE FIRST PLACE.

Nope, sorry. Being honest gets you NOWHERE in the post-Clinton world...

[txgrouch2006]

blitzder wrote
After nearly 8 years of unfettered & absolute contol of the Congress, the Senate, the White House, the Supreme Court and the Military, we still have Republican parasitic supporters blamimg the Clinton years for the excruciating suffering perpetrated on low and middle income Americans.
-------------
Sorry, but Republican control lasted on SIX years. The Republicans lost their majority in Congress two years ago. And notice how the "excruciating suffering" has been happening in the past TWO YEARS.

Maybe you''re paranoid enough to believe the President is causing these problems ON PURPOSE to make the Democrats look bad. Do YOU believe it''s all a CONSPIRACY against the Democrats??? LOL!

[oneworldusa]

But, this is a great opportunity. For the responsible working folks with good credit, negotiate, negotiate, negotiate with EVERYONE you do business with. Take charge and tell them you''re not paying the price for the criminals and if they want your business, they have to do it on YOUR terms, or you''ll go elsewhere until you get the deal you want. Someone will bite, because they need the business so bad. Let''s NOT keep paying the price for everyone else''s laziness or lack of discretion. We are the ones who pay the bills. We are the ones who manage to keep businesses afloat. Demand that we will not be charged more to account for the deadbeats.

[oneworldusa]

Here we go again. The responsible hard-working middle class taking care of the wealthy who make bad decisions and the irresponsibles. When is it ever going to stop?

[blitzder]

After nearly 8 years of unfettered & absolute contol of the Congress, the Senate, the White House, the Supreme Court and the Military, we still have Republican parasitic supporters blamimg the Clinton years for the excruciating suffering perpetrated on low and middle income Americans.

The American public can see thru this mischievious blame charade and I tell you, come November, Republicans are in the dustbin history. THE WRITING IS ON THE WALL. And it ain''t pretty for this low life party.

[harp1963]

Just put it on the "George and D i c k Gullible Republican Voting Taxpayer" credit card. Your great great great great grandkids can pay it off only if you vote for John McCain for more of the same.

[lochlan-2009]

Well so far that bailout of Northern Rock that you say was a much larger magnitude hasn''''t done a da*mn thing to harm the pound against the dollar. It''''s still twice the value of the dollar. The Euro has been closing in however.

Posted by l8c6

Everything with the real estate market and banks seems to be following the same process as Britain over here, like out of a book. It''s kind of like all the companies who were doing the same accounting scam as Enron.

We just get it delayed by a year or two.

[l8c6]

My point is that, they are both going to be eventually nationalized like Northern Rock was in the UK, causing the Dollar to totally collapse, therefore you''''re right about us heading to Hell in a handbasket.

Posted by Marshall_Nee

Well so far that bailout of Northern Rock that you say was a much larger magnitude hasn''t done a da*mn thing to harm the pound against the dollar. It''s still twice the value of the dollar. The Euro has been closing in however.

[l8c6]

Democrats and Republicans queasy about a federal rescue of the mortgage giants are coalescing around the idea of letting the government slap limits on the multimillion-dollar pay packages of their executives.

The "conservative" of a different horse German female prime minister set limits on executive pay. It''s out of control in this country. Greed kills.