SGHOUSING.COM 新加坡房地产网

With shares slumping, US govt stops insisting no rescue is needed

WASHINGTON: The United States Treasury has backed away from assurances that there is no need to rescue Fannie Mae and Freddie Mac, as the crisis surrounding the American mortgage finance giants deepens, with their shares falling for a third day, the Financial Times (FT) has reported.

Although it was granted new powers last month to prop the companies up with a cash infusion, either through loans or by buying stock, the Treasury had been adamant that it did not expect to use the new authority.

On Wednesday, however, a Treasury spokesman declined to repeat that assurance, FT reported yesterday on its website. Instead, she said the Treasury was ‘vigilantly’ monitoring market developments and was ‘focused on efforts that will encourage market stability, mortgage availability and protecting the taxpayer’.

While the companies continue to insist that their fundamental finances are sound, investor confidence in Fannie Mae and Freddie Mac has taken a pounding this week as speculation about a federal government bailout gains pace in the news media and among market analysts.

Shares of Fannie Mae and Freddie Mac tumbled more than 20 per cent on Wednesday, hitting their lowest levels in nearly two decades, as investors fled out of fear that a government initiative to save the ailing mortgage giants could render their stock worthless.

The stock sell-off came a day after Freddie Mac was forced to pay an unusually high interest rate on five-year notes to entice investors to purchase its debt.

This week alone, both companies’ shares have dropped by 44 per cent in very heavy trading. In the past 12 months, Fannie Mae’s market value has plummeted 88 per cent, or US$34 billion (S$47.98 billion), to US$4.73 billion. Freddie Mac’s value has dropped by US$20 billion, or 90 per cent, to $2.1 billion.

The companies have reported a combined US$14.9 billion in net losses over the past year.

A growing chorus of industry analysts are predicting that the government will have to intervene to prevent a further deterioration of the firms, which own or guarantee half of the US’ mortgage debt.

The two firms have been reeling as concerns mount that they may not have enough capital to cover losses because of the rising number of bad home loans. If Fannie Mae or Freddie Mac collapses, it may cripple the US housing market, dealing a staggering blow to the wider economy, and will saddle the federal government with massive debts if it chooses to seize control of either firm.

Both companies say they have enough capital to weather the severe downturn in the housing market.

WASHINGTON POST
 
Source : Straits Times - 22 Aug 2008