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Quick Hits: Fannie, Freddie Bailout Looks Inevitable


Brief scrutiny of today's headlines.

The Senate will consider legislation intended to boost confidence in Fannie Mae (FNM) and Freddie Mac (FRE) and stanch the flow of record mortgage foreclosures.

The bill gives Treasury Secretary Henry Paulson the authority to pump money into Fannie Mae and Freddie Mac, and also allows the government to insure refinanced home loans.

On Tuesday, the House voted 272-152 to approve the bill and sent it to the Senate, where it's expected to pass. After initial reluctance, President Bush says he'll sign the bill into law.

Some Republicans said the bill risked more taxpayer money and didn't provide much-needed overhaul of the mortgage-finance firms. But Paulson said the bill was critical to stabilizing the U.S. financial markets; he persuaded Bush to drop his threatened veto.

The bill gives Paulson the authority to make unlimited equity purchases in Fannie Mae and Freddie Mac and, if necessary, lend them money to prevent their collapse. The firms now account for about 70% of new mortgages.

The bill also provides for the government to insure as much as $300 billion in refinanced mortgages.

The Congressional Budget Office, a non-partisan agency, says the plan to back Fannie and Freddie could cost taxpayers as much as $25 billion.
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