Fannie, Freddie shares fall further on bailout talk

21 August 2008

Shares in US mortgage lending giants Fannie Mae and Freddie Mac hit an 18-year low yesterday, on fears over the government-sponsored firms' business prospects.

Last week, a report in Barron's financial journal suggested that a government bailout of the mortgage lenders was likely due to their revenue concerns.

In turn, this follows recently-passed legislation, allowing the US Treasury to lend unlimited sums to Fannie and Freddie.

The Wall Street Journal also reported yesterday that executives at the two lenders - who between them hold $2.5 trillion in mortgage debt - will meet with government officials, and potentially map out a bailout plan.

Stock in both firms closed 20 per cent lower yesterday.

Speaking to the Washington Post, Fox-Pitt Kelton Cochran Caronia Waller analyst Howard Shapiro said: "I don't think we can rule out a government intervention. Fannie and Freddie are crucial to stabilizing the housing market, and the housing market is crucial to stabilizing the banks and the financial services industry.

"Perception creates its own reality."

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