Taxpayer Bill for Fannie/Freddie May Be Zero

The debate about the need to shore up Fannie Mae (FNM - Cramer's Take - Stockpickr) and Freddie Mac (FRE - Cramer's Take - Stockpickr)is focusing too much on the worst-case scenario - the possible $25 billion cost to taxpayers - and largely ignoring the low-end estimate of zero.

Yes, you read that right: It might cost the taxpayer nothing. The Congressional Budget Office (CBO) released its estimate to the House Budget Committee in a letter Tuesday, saying it would take anywhere from $0 to $25 billion in taxpayer money over Fiscal Year 2009 and 2010 to help the government-sponsored-enterprises (GSE).

The proposed Treasury Department legislation authorizes the use of funds, but that doesn't mean the money has to be spent. Peter Orzag, Director of the CBO, wrote:

"The Congressional Budget Office (CBO) estimates that there is a significant chance--probably better than 50 percent--that the proposed new Treasury authority would not be used before it expired at the end of December 2009. If the proposal is enacted, private markets might be sufficiently reassured to provide the GSEs with adequate capital to continue operations without any infusion of funds from the Treasury...Under that scenario, the temporary authority would not be used and thus would involve no budgetary cost."

Orzag makes a key point that needs to be heard by market participants. The explicit backing of the federal government demonstrates the government's ability and determination to stand behind its policy directive to subsidize home ownership in America.

This is good news for shareholders of Fannie and Freddie, provided the legislation is enacted. Both Fannie and Freddie have made attempts to secure private sources of funding to bolster their bottom line. The legislation would make those efforts an almost certain success.