Fannie Mae and Freddie Mac, the mortgage firms operating under federal conservatorship, may cost taxpayers as much as $685 billion as the United States covers losses and overhauls the housing-finance system, Standard & Poor's said.
Costs for resolving the two government-sponsored entities could reach $280 billion, including $148 billion already delivered under a U.S. Treasury Department promise of unlimited support, S&P said Thursday in a research report.
The government may spend another $405 billion to capitalize a replacement for the two companies, which own or insure more than half of the U.S. mortgage market.
"It appears unlikely in our view that housing and mortgage markets will be able to operate normally without continuing and substantial government involvement," S&P said, citing the GSEs' growing portfolio of unsold homes, a sluggish economy, high unemployment, the prospect of rising foreclosures and billions in legacy losses.
Treasury Secretary Timothy Geithner, who has said there is a strong case to be made for continued U.S. involvement, has promised to deliver the Obama administration's plan to overhaul the housing-finance system by the end of January. Republican lawmakers who will take control of the House of Representatives in January have called for the government to end its support for Fannie and Freddie.
"Although federal authorities have taken no concrete public steps toward sponsoring a GSE alternative, Standard & Poor's believes that it's a useful exercise to consider how much such a recapitalization might cost taxpayers," the report said.
The Federal Housing Finance Agency, which oversees Fannie and Freddie, said last month that they could need as much as $363 billion in taxpayer aid.