Fannie, Freddie Shares Suffer Hit as Mortgage-Default Fears Mount

Wall Street Journal (03/11/08) P. A3; Hagerty, James R.
Fannie Mae and Freddie Mac recorded declines in stock prices on March 10, falling 13 percent and 12 percent, respectively, in response to concerns that rising mortgage defaults will require them to raise additional capital. However, the Office of Federal Housing Enterprise Oversight, the regulator of the government-sponsored enterprises, agrees with them that they have sufficient capital at the present time. Analysts increasingly are concerned about the Bush administration and Congress' reliance on the GSEs to bolster the housing and mortgage markets at a time when they are suffering losses, which amounted to $9 billion in the latter half of 2007. Given that Fannie Mae alone owns or guarantees approximately 25 percent of outstanding mortgages, the GSEs will post billions of dollars in losses if defaults rise modestly. Credit Suisse analyst Moshe Orenbuch anticipates a $2.6 billion loss for 2008 and a $32 million profit for 2009 for Fannie Mae, and a $3.4 billion loss for 2008 and a $245 million profit for 2009 for Freddie Mac.