WASHINGTON, US - A BUSH administration plan to bolster Fannie Mae and Freddie Mac could cost US taxpayers $25 billion (S$33.9 billion), congressional analysts said on Tuesday in a report that triggered debate as Congress moved toward approving a major housing market rescue package.

Fannie and Freddie shares fell sharply on the report's release but later recovered, with Freddie stock ending higher and Fannie paring its losses.

Investors are concerned whether the two government-sponsored mortgage finance giants, which own or guarantee almost half of the nation's $12 trillion in outstanding residential mortgage debt and play an increasingly key role in the troubled American housing market, can weather a national housing slump.

'Now more than ever, we need Fannie and Freddie out there, financing mortgages,' said Mr Paulson, who wants to give Fannie and Freddie access - if they need it - to cheap, government capital in the form of loans and possible equity investments by the government.

Congress was pushing ahead on a 600-page housing bill that was expected to include Mr Paulson's proposals, as well as measures to establish a new regulator for the companies and to help distressed homeowners refinance into new mortgages.

In estimating the potential cost exposure of taxpayers to Paulson's proposal, the nonpartisan Congressional Budget Office (CBO) said there was no certainty on whether the capital line he wants to create for the companies would ever be tapped.

The CBO said there is a 'probably better than 50 per cent' chance that the proposed new Treasury authority would not be used before it expired at the end of December 2009.

In that case, the proposed credit line and possible government equity investment would cost taxpayers nothing.

But the CBO said that a favorable 'scenario is far from the only possible result'.

Any further worsening in the already steep housing market slump 'would increase the probability that this new authority would have to be used', it said.

The housing bill will go to the House of Representatives floor for action on Wednesday, Massachusetts Democratic Rep Barney Frank, the Financial Services Committee chairman, told reporters. House approval would send the bill to the Senate, where senior Republicans urged prompt legislative action.

McConnel urges action
Fresh from a meeting with Mr Paulson, Senate Minority Leader Mitch McConnell, of Kentucky, said the secretary underscored the importance of getting housing legislation finished.

Mr McConnell told reporters after a luncheon meeting, 'Most of my members share his view that we need to wrap this up'.

The Office of Federal Housing Enterprise Oversight (OFHEO), which regulates Fannie and Freddie, reported that home prices fell 0.3 per cent in May, for a third straight monthly decline.

Shares in Fannie closed down 5.1 per cent at $13.41, while Freddie shares finished up 10.9 per cent at $9.70, on a day of broadly bullish trading on the New York Stock Exchange.

In related news, short sales in Fannie and Freddie shares, in which investors bet on a fall in the share price, have declined 90 per cent since an emergency rule against abusive short sales took effect, a market data firm S3 Matching Technologies said.

Market regulators are cooperating on examining the GSEs, according to spokesmen for the Federal Reserve and the Office of the Comptroller of the Currency.

'The Federal Reserve is working with OFHEO to get a better understanding of the issues facing the GSEs,' a Fed spokesman said, declining to provide further details.

White House spokesman Dana Perino said the administration was studying the CBO report. 'Our intention is not to need any sort of federal taxpayer monies in this regard,' she told reporters. 'I would consider this more of an insurance policy.

'So no taxpayer dollars at this point are on the line.'

She said that if Treasury capital were tapped by the GSEs under Mr Paulson's plan, 'the president would make sure that terms and conditions would be in place to protect the taxpayer'. -- REUTERS