WORLD> America
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WORLD> America
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Washington, Wall St. weigh Fannie, Freddie help
(Agencies)
Updated: 2008-07-12 19:02 Wall Street sent the companies' stocks lower nonetheless. Freddie Mac shares were down 25 cents, or 3.1 percent, to US$7.75. Fannie Mae shares were down US$2.95, or 22.4 percent, to 10.25. "I think everybody's just holding their breath in expectation that something substantive from the government will happen today or over the weekend," said Karen Shaw Petrou, managing partner of consulting firm Federal Financial Analytics. Analysts also suggested the problems had as much to do with market perceptions than any fundamental change in the two companies' finances. One report from Citigroup titled "Fear Begets Fear" called the sell-off "overdone." The US government has several options that stop short of a dramatic takeover. The Federal Reserve could provide emergency loans, or take on either company's mortgage-backed securities in an effort to reassure the market. Under a government takeover, operations would continue at Fannie or Freddie, but shareholders would probably see their investments erased, and the companies' ability to support the mortgage market could be reduced. "Typically when this happens the business is a shell of its former self," said Louisiana State University banking professor Joseph Mason. "Shareholders aren't going to like it, managers and directors aren't going to like it, but it's not about whether they like it." The mortgage giants could face a replay of the near-collapse in March of investment bank Bear Stearns Cos. A crisis of market confidence can make it difficult to raise day-to-day operating cash through routine debt sales. The chief regulator of Fannie and Freddie, the Office of Federal Housing Enterprise Oversight, said on Thursday that the two companies were "adequately capitalized." Congress created Fannie, the Federal National Mortgage Association in 1938 and Freddie, the Federal Home Loan Mortgage Corp., in 1970. They were designed to buy mortgages and bundle them into securities for sale to investors worldwide, making home ownership affordable for more Americans. Under a 1992 law, they have less strict standards than commercial banks for the financial cushions they must hold to protect against risk. Paul Miller, an analyst with Friedman, Billings, Ramsey & Co., said neither company is in as dire a financial position as Bear Stearns was in the spring -- making investors nervous no action will be taken over the weekend to shore them up. He said Fannie and Freddie could soothe market fears by selling more shares of stock to investors and raising cash. "I hope that they raise capital and they raise a lot of it," he said. Congress is moving closer to completing a housing rescue package that would create a new regulator for Fannie and Freddie and tighten controls over them. The bills would also permanently raise the limit on the loans they can buy.
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