Transcripts

Fannie Mae & Freddie Mac Continue To Fall

SUSIE GHARIB: Shares of Fannie Mae and Freddie Mac plunged again today on continuing concerns the government will have to bail out the mortgage giants. Fannie and Freddie each fell about 25 percent to their lowest levels in nearly two decades. Investors sold shares on the belief that the two firms would not be able to raise enough money to remain viable and that the Treasury Department will be forced to re-capitalize them. Stephanie Dhue reports.

STEPHANIE DHUE, NIGHTLY BUSINESS REPORT CORRESPONDENT: Fannie Mae and Freddie Mac are publicly traded companies with a government mission to lower mortgage costs. But that public-private business model is now in doubt. Analyst Chuck Gabriel says investors are spooked that Fannie and Freddie will no longer remain private, shareholder-owned companies.

CHUCK GABRIEL, ANALYST, CAPITAL ALPHA PARTNERS: You're basically seeing equity investors abandon the stock because of spin that suggests that we are hell-bent towards a U.S. Treasury capital infusion into Fannie Mae and Freddie Mac that would wipe out common shareholders.

DHUE: Clearly, today's efforts to reassure investors failed. This morning, Fannie Mae CEO Daniel Mudd told NPR his company is better capitalized than it has ever been and Freddie Mac executives reportedly met with Treasury officials to discuss how to weather the storm. Last month, Congress gave the Treasury temporary authority to take an equity stake in the firms or loan them an unlimited amount of money. Investors want to know exactly what the Treasury will do next. In the meantime, there's little support for the stock.

GABRIEL: You're not a responsible fiduciary, if you're a money manager in America today, if you sit and ride these stocks down based on some emotional commitment or just negligence, if in fact you ignore signs that suggest this is a case.

DHUE: Analysts say investors now demand a higher return than Fannie and Freddie can make on their assets. One way the firms planned to raise capital was through preferred stock, but those shares now carry a 14 to 16 percent interest rate, the type of premium typically associated with junk bonds. Sean Egan of Egan Jones rating agency figures the Treasury would have to pump in at least $20 billion to calm investor fears.

SEAN EGAN, FOUNDING PRINCIPAL, EGAN-JONES: Right now, Fannie and Freddie have a market capitalization that's less than $6 billion, which is really just a sliver compared to the total assets and their total exposure.

DHUE: Some analysts say there's still a chance Fannie and Freddie could turn things around but the window of opportunity to do is rapidly closing. Stephanie Dhue, NIGHTLY BUSINESS REPORT, Washington.