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Fallout: The Financial Crisis

Can Fannie and Freddie fight free fall?

Alisa Roth Jul 11, 2008
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Fallout: The Financial Crisis

Can Fannie and Freddie fight free fall?

Alisa Roth Jul 11, 2008
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TEXT OF STORY

Scott Jagow: Things are looking pretty grim this morning for the mortgage lenders Fannie Mae and Freddie Mac. The stock price of both companies is in a free fall. Those shares have lost half their value today. Wall Street seems convinced a government takeover of some sort is coming. Alisa Roth has more.


Alisa Roth: The U.S. mortgage market is worth $12 trillion. Fannie Mae and Freddie Mac either own or guarantee half those mortgages. But the two companies have seen huge losses since the mortgage crisis started. And it’s getting worse.

Josh Rosner is with Graham Fisher:

Josh Rosner: Look, the companies obviously ultimately have losses that will require them to raise more capital.

He says if there’s a way to raise that money through equity, the companies should do that. But he worries that with share prices falling, that could be tricky.

There’s long been an assumption the government would bail out Fannie and Freddie if the situation got really bad. So the question is how would or how could the government step in?

Rosner: There is no clear policy. Washington has dragged its feet on legislation and unfortunately still is not fully accepting the seriousness of the situation.

Rosner says a straight bailout is out of the question. But there are other options. The government’s considering what those might be. But, Rosner warns, Fannie and Freddie may still be able to sort it out on their own.

In New York, I’m Alisa Roth for Marketplace.

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