Forex

The US Treasury’s rescue plan for Fannie Mae and Freddie Mac could cost taxpayers $25bn, congressional researchers said on Tuesday as evidence mounted that turmoil at the two companies is helping push up interest rates for homebuyers.

US mortgage rates have hit their highest levels in about a year amid rising Treasury yields and growing fears among investors that Fannie and Freddie will cut back their purchases of home loans and mortgage securities

Hank Paulson, Treasury secretary, on Tuesday said he was “confident” Congress would complete work on approving his plan to give the Treasury authority to increase its credit line to Fannie and Freddie and invest in their equity, if necessary.

The plan has faced criticism on Capitol Hill for exposing taxpayers to potentially huge losses, but is seen by most lawmakers and administration officials as necessary to prevent mortgage rates from climbing even higher.

“I would rather not be in the position of asking for extraordinary authorities to support the GSEs, but I am playing the hand that I have been dealt,” Mr Paulson said in New York.

“Turning the corner on the housing correction requires homebuyers to return to the market, and homebuyers need available and affordable mortgage financing.”

The $25bn estimate of the fiscal impact of the Treasury’s proposed rescue plan for the two ailing mortgage giants was prepared by the non-partisan Congressional Budget Office.

It said there was more than a 50 per cent chance the US would not have to intervene to save Fannie Mae and Freddie Mac over the next 18 months. But it said there was a 5 per cent chance the Treasury would have to make up about $100bn in additional losses if housing market conditions worsen. On the basis of these estimates, and other factors, it put the cost at $25bn.

The CBO estimate was generally well received by lawmakers. “A lot of people thought it would be much higher,’’ said Richard Shelby, top Republican on the Senate banking committee.

Meanwhile, Barney Frank, Democratic chairman of the House financial services committee, was pushing for a vote on the legislation as early as Wednesday in the House.

Policymakers’ hopes of reviving the US housing market have been complicated by rising mortgage rates, which prevent homeowners from being able to refinance home loans at lower levels.

Keith Gumbinger, vice-president at HSH Associates, said the rate on 30-year “conforming” mortgages – those that Fannie or Freddie buy – is now at 6.71 per cent, essentially a 52-week high. He also said the historical relationship between mortgage rates and government bond yield was changing, meaning home buyers were paying far more relative to Treasuries than they did before the crisis.