Should the funds be needed, taxpayers could end up forking over $25 billion to save beleaguered mortgage lenders Fannie Mae (FNM) and Freddie Mac (FRE), according to Peter Orszag, the director of the Congressional Budget Office.
In a letter to Congress, Orszag said that there is less than a 50 percent chance that the Treasury Department will have to tap into the 18-month lifeline, assuming Congress passes the legislation granting access to taxpayer funds to bail out the embattled government-backed mortgage lenders.
The CBO estimated a "probably better than 50 percent" chance that the proposed new Treasury authority would not be used prior to December 2009, the end of its 18-month window.
"Under that scenario, the temporary authority would not be used and thus would involve no budgetary cost," Orszag said.
This scenario is consistent with Treasury Secretary Henry Paulson's request for the funds as a back-up, although he does not expect that they will be needed. This week, congress will vote whether or not to allow Paulson the 18 month window he requested to allow the Treasury to buy Fannie and Freddie stock, helping to capitalize the GSEs.
"We need to act in the short-term because the GSEs are vital institutions in our capital markets today and are vital to emerging from the housing correction," Paulson said Tuesday in a speech at the New York Public Library.
Earlier this month, former St. Louis Fed President William Poole declared Freddie Mac "technically insolvent." That touched off a firestorm of worry about the position of Fannie and Freddie in the midst of a housing crisis, as lenders and banks bleed billions in losses following the collapse of the subprime market and its spread to prime mortgages. Paulson called for reinforcement of the embattled lenders.
"There is a need to support efforts that strengthen Fannie and Freddie's ability to continue to play their important role in financing mortgages and in our capital markets more broadly," he said.
Paulson expressed his discomfort with the situation.
"I would rather not be in the position of asking for extraordinary authorities to support the GSEs," he said. "But I am playing the hand that I have been dealt."
In his letter, Orszag added that the scenario in which Paulson won't use the funds 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 letter read.
Indeed, Paulson has reiterated his belief that the institutions are far too big to fail. They account for over $5 trillion of the $12 trillion mortgage market and touch between 70 and 80 percent of all new mortgages.
"Because of their size and scope, Fannie and Freddie's stability is critical to financial market stability," Paulson said Tuesday. "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."
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June 05, 2026 16:18 ET A busy week for economic news flow saw a slew of reports being released that reflected the trends in the U.S. labor market. In Europe, economic growth and inflation data gained attention as the European Central Bank and Bank of England head for policy session later in the month. In Asia, the monetary policy session of the Indian central bank was in focus as the country, a major oil importer, reels under the pressures of a weaker rupee and rising inflation.