Bailout concerns slam Freddie Mac and Fannie Mae shares

August 18, 2008 by · Leave a Comment
Filed under: Industry News 

More concerns on Freddie Mac and Fannie Mae capital situation have come to bear again.  At the time of this reading, the Dow Jones has fallen 188 points.  The article talks about how a nationalization is getting more likely as time passes and if this happens then shareholder value will be wiped out.


Investors dumped shares of Fannie Mae and Freddie Mac on Monday after Barron’s reported the increasing likelihood of a U.S. Treasury bailout that would approach nationalization of the two housing finance titans.

The weekly financial newspaper said such a move could wipe out existing holders of the largest U.S. home funding companies’ common stock. Preferred shareholders and even holders of the two government-sponsored entities’ $19 billion of subordinated debt would also suffer losses.

Shares of the two providers of home mortgage funding fell more than 16 percent and some of their bonds sharply underperformed Treasuries. A $4 billion sale of new Freddie Mac debt drew weak bids compared with similar issues last week.

A spokeswoman for the U.S. Treasury said the department has no plans to use its authority to backstop the two funding agencies. That authority was greatly increased by a rescue plan approved at the end of July.

“The Barron’s article overstated Freddie Mac’s financial situation,” Sharon McHale, a Freddie Mac spokeswoman, told Reuters. “We continue to be adequately capitalized.”

The poor performance of the U.S. mortgage market has pulled home loan rates up by about a percentage point from a year ago, just as the worst housing market since the Great Depression struggles to find a bottom.

Overseas central banks have sold nearly $11 billion from their holdings of agency-related securities in the past four weeks, awaiting clarity on the extent and nature of U.S. government backing of the two faltering companies, known as GSEs.

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