An intensified effort to exploit government control of Fannie Mae and Freddie Mac to drive down US mortgage costs and cushion a decline in house prices could start soon.

This might begin in the final weeks of the Bush presidency and is likely to continue under Barack Obama’s administration.

By the time it is over, the US taxpayer could own a large chunk of the US residential mortgage-backed securities market.

The Federal Reserve has already stated its intention to buy $600bn (€449bn, £401bn) of Fannie and Freddie securities and is interested in doing more. Meanwhile, support is building for a plan to offer government funded 4.5% mortgages for new home purchases that would be sold by banks, securitised by the mortgage giants and sold on to the government.

This proposal – based on an idea by Glenn Hubbard and Christopher Mayer, professors at Columbia University – is being considered by Hank Paulson’s Treasury. Tim Geithner and Lawrence Summers, the president-elect’s economic chiefs, also appear interested.

Financial Times