Fannie Mae, Freddie Mac shares drop

The slump followed the
government’s decision not to ease investment caps on
mortgage finance giants.

ASSOCIATED PRESS

Shares of Fannie Mae and Freddie Mac slumped Monday within a rebounding stock market, following the government’s decision late Friday to deny requests to ease the mortgage finance giants’ investment caps.

Fannie Mae shares fell $2.34, or 3.52 percent, to $64.12 Monday, while Freddie Mac stock declined 43 cents to $61.52.

Last week, investors catapulted Fannie’s share price 17 percent and drove up Freddie’s stock by 11 percent amid speculation that federal regulators would agree to relax the investment limits on the companies as a way to provide liquidity in the turbulent market for mortgage-backed securities. Key Democratic lawmakers and others had clamored for the Office of Federal Housing Enterprise Oversight to do so.

Risk is ‘too great’

OFEHO Director James B. Lockhart, however, said after the market close Friday that the risk of allowing the companies to take on more debt at the moment was too great. Combined, Fannie and Freddie finance or guarantee about two-thirds of all U.S. home mortgages. OFHEO mandated caps last year on the two companies’ mortgage investment holdings — Fannie’s is now set at $727 billion, Freddie’s at $724 billion — in response to multibillion-dollar accounting scandals at the companies.

“We respect the director’s decision,” Freddie Mac spokeswoman Sharon McHale said Monday. “We still believe that enabling us to bring additional liquidity to the market, at a time when the markets are experiencing the illiquidity they are, makes sense.”

Fannie Mae had made a formal request to OFHEO for a 10 percent increase in its investment ceiling, with President and CEO Daniel Mudd saying it “would help to alleviate the ongoing credit crunch in the markets and bring an additional measure of stability.” Company spokesman Brian Faith declined to comment Monday on the regulators’ decision.