Fannie and Freddie Under Serious Pressure Again

July 9, 2008 No Comments »


Shares of mortgage financiers Fannie Mae and Freddie Mac plummeted again today as capital concerns re-emerged, driving prices back to levels seen Monday.

Two days ago, Lehman analyst Bruce Harting expressed concern about a new accounting rule that he speculated could require the two government-sponsored entities to raise billions in new capital.

But yesterday, OFHEO Director James B. Lockhart worked to soothe investor jitters, explaining that the new accounting rule didn’t dictate the pair’s capital requirements.

Instead, he noted that his agency and federal law determine the capital requirements, adding that there wasn’t a good chance of a necessary bailout for the two firms.

Those words seemed sufficient enough to buoy the stocks on Tuesday, but his words didn’t appear to have any lasting effects, as both stocks faced serious downward pressure today after analysts and a former OFHEO chief warned that the new rule couldn’t be overlooked.

“OFHEO does not have the flexibility to ignore generally accepted accounting principles,” said Armando Falcon, who headed the OFHEO until May 2005, in an interview with Reuters.

Shares of Freddie Mac slumped $3.29, or 24.44%, to $10.17, while Fannie Mae fell $2.27, or 12.88%, to $15.35.

(photo: justlgi)

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