NEW YORK (CNNMoney.com) — When it comes to rescuing Fannie Mae and Freddie Mac, there’s not likely to be any middle ground.
Treasury Secretary Henry Paulson hopes he’ll never have to use the unlimited authority he has just received to bail out the mortgage giants. If he’s right, the cost to taxpayers will be zero.
But if Treasury does have to rescue Fannie and Freddie, it’s likely to cost far more than the current estimate of $25 billion - even well beyond the $100 billion worst-case-estimate from the Congressional Budget Office.
Fannie and Freddie, which have charters with the government, are instrumental to the mortgage process since they provide funding to banks by purchasing pools of home loans and packaging them as securities.
Shares of the two companies have each plunged about 50% in the past month, raising fears about whether they have enough capital to deal with losses brought on by further declines in home prices.
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