Thank you for sharing!

Your article was successfully shared with the contacts you provided.

WASHINGTON, DC-A series of events have reawakened Wall Street’s fears about Fannie Mae and Freddie Mac’s solvency, despite the housing bill that was signed into law last month that gives the Treasury Department authority to buy stock, debt and MBS from the agencies. Shares of both GSEs are plunging as investors wonder if their holdings’ value will be wiped out completely in a government bailout. Fannie Mae’s stock has dropped 90 cents to $5.11 on Wednesday. Freddie Mac’s stock value has plunged 79 cents to $3.38.

What fueled this latest crisis in confidence was a Barron’s article last weekend that speculated the government’s likelihood of a takeover is increasing, Peter Cohan, principal of the consulting firm Peter Cohan & Associates, tells GlobeSt.com. “That is definitely one of the reasons: the article said if Fannie and Freddie cannot raise the $10 billion each that they need, Treasury will take over it and sell off its bad loans. Shareholders will be left with nothing in that scenario.”

According to public comments by Treasury Secretary Henry Paulson, no government takeover is planned. Fannie Mae and Freddie Mac did not return calls in time for deadline.

There are other signs of financial stress that worry investors, Cohan adds. “Freddie Mac tried to raise money this week and they had to pay a much higher spread than they have in the past.” The agency raised $3 billion in five-year debt, but at 1.13 percentage points over the rate the federal government pays for comparable borrowing, he notes. Another worrisome sign: Asian investors only purchased a small percentage of Fannie Mae paper recently. A year ago, these investors purchased as much as two-thirds of it, according to Cohan. “What is happening is that they are having more trouble raising short-term financing.”

These events follow very poor earnings performance from the GSEs for Q2. On Aug. 6, 2008, Freddie Mac reported a loss of $821 million loss, or $1.63 per share for Q2. Two days later, Fannie Mae reported a loss that took even wary Wall Street analysts by surprise, losing $2.3 billion, or $2.54 per share.

Want to continue reading?
Become a Free ALM Digital Reader.

Once you are an ALM digital member, you’ll receive:

  • Unlimited access to GlobeSt and other free ALM publications
  • Access to 15 years of GlobeSt archives
  • Your choice of GlobeSt digital newsletters and over 70 others from popular sister publications
  • 3 free articles* across the ALM subscription network every 30 days
  • Exclusive discounts on ALM events and publications

*May exclude premium content
Already have an account?


Join GlobeSt

Don't miss crucial news and insights you need to make informed commercial real estate decisions. Join GlobeSt.com now!

  • Free unlimited access to GlobeSt.com's trusted and independent team of experts who provide commercial real estate owners, investors, developers, brokers and finance professionals with comprehensive coverage, analysis and best practices necessary to innovate and build business.
  • Exclusive discounts on ALM and GlobeSt events.
  • Access to other award-winning ALM websites including ThinkAdvisor.com and Law.com.

Already have an account? Sign In Now
Join GlobeSt

Copyright © 2020 ALM Media Properties, LLC. All Rights Reserved.