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Fannie Mae, Freddie Mac Stocks Tumble over Bailout Fears

BY Admin  July 10, 2008 at 12:55 PM EDT

Foreclosed home

Fannie Mae stock dropped 24 percent and Freddie Mac dropped 34 percent after former St. Louis Federal Reserve President William Poole told Bloomberg News the companies may need a U.S. government bailout.

Freddie Mac owed $5.2 billion more than its assets were worth in the first quarter. The value of Fannie Mae assets could be negative next quarter, Poole said.

As the nation’s housing slump continues, there is concern that needed capital cannot be raised in the markets because of ongoing losses in the housing market.

Bush administration officials have been meeting with regulators to discuss contingency plans for that scenario, reported the Wall Street Journal. The meetings have been going on for months, the paper reported, though the government is not planning an imminent rescue.

In a separate opinion piece, the Wall Steet Journal wrote that “investors are saying the chance of a collapse is greater than our politicians want to admit,” and warned that Americans will soon learn about the risks of these government-sponsored enterprises.

“The government has to step in and do something,” Friedman, Billings, Ramsey & Co. analyst Paul Miller told the Associated Press, though he said that action will likely reduce shareholders’ interests “to the point where they might not have any value.”

Treasury Secretary Henry Paulson tried to calm fears of a collapse Thursday, saying the companies’ regulator “has made clear that they are adequately capitalized.”

The stocks’ slide began Monday when Lehman Brothers analysts said in a report that an accounting change could force the companies to raise a combined $75 billion.

Today’s news came as RealtyTrac released new real estate data showing forecloses in June were down 3 percent from May, but jumped 53 percent from June of last year.

There were 252,363 foreclosures nation-wide in June, the second month in a row with more than a quarter million properties receiving foreclosure filings, said James J. Saccacio, chief executive officer of RealtyTrac.

“We have not yet reached the top of this foreclosure cycle,” Saccacio told CNN.

Meanwhile, the Senate voted Thursday to pass a massive mortgage rescue bill that would let the Federal Housing Administration back up to $300 billion in new loans for struggling homeowners, but legislative obstacles remain for the bill.

The House will likely make changes to key portions of the bill and the White House is still threatening a possible veto. Conservative House Democrats oppose the $3.9 billion allocated in the Senate measure bill for buying and rehabilitating foreclosed properties.

Other provisions of the bill would create a new regulator and tighter controls on Fannie Mae and Freddie Mac.