Paulson says GSE bailout cost hinges on housing

NEW YORK (Reuters) - The eventual cost of the U.S. government's bailout of mortgage finance companies Fannie Mae and Freddie Mac will depend on the trajectory of the housing market, Treasury Secretary Henry Paulson said on Monday.

"We ultimately don't know," Paulson told CNBC television the day after the U.S. government took control of the two companies. The price tag of the takeover will depend on "how long it will take for housing prices to stabilize and the housing market to come back."

Paulson said a burst of selling in agency bonds by foreign central banks was one factor in the decision, but not a major driver.

The bailout was warranted because the two agencies were just too large, and presented a risk to the global financial system, Paulson said.

"There was grave concern," Paulson said.

Speaking earlier on CBS television, Paulson said Fannie Mae and Freddie Mac were based on a troubled business model with conflicts of interest between private profits and public services.

The government's plan made sure that taxpayers were protected, but that stockholders would not be insulated from losses, Paulson said.

(Reporting by Pedro Nicolaci da Costa and Richard Leong, Editing by Chizu Nomiyama)