Shares in US mortgage lending giants Fannie Mae and Freddie Mac hit an 18-year low yesterday, on fears over the government-sponsored firms’ business prospects.
Last week, a report in Barron’s financial journal suggested that a government bailout of the mortgage lenders was likely due to their revenue concerns.
In turn, this follows recently-passed legislation, allowing the US Treasury to lend unlimited sums to Fannie and Freddie.
The Wall Street Journal also reported yesterday that executives at the two lenders – who between them hold $2.5 trillion in mortgage debt – will meet with government officials, and potentially map out a bailout plan.
Stock in both firms closed 20% lower yesterday.
“I don’t think we can rule out a government intervention. Fannie and Freddie are crucial to stabilizing the housing market, and the housing market is crucial to stabilizing the banks and the financial services industry,” says Fox-Pitt Kelton Cochran Caronia Waller analyst Howard Shapiro.