Shares of the government-chartered mortgage finance giants plummeted Thursday and are trading at levels last seen in the early 1990s. If the prices don't recover, it will be harder for the two companies to raise more money through stock sales to compensate for losses from the housing bust. Investors are afraid their stakes will vanish if the government is forced to rescue the companies.
''The government has to step in and do something,'' said Friedman, Billings, Ramsey & Co. analyst Paul Miller.
Freddie Mac shares fell $2.26 or 22 percent, to $8, after sinking as low as $6.75 earlier in the day. Shares of Fannie Mae fell $2.11, or 13.8 percent, to $13.20, after earlier falling to $11.70.
Testifying on Capitol Hill, Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke sought to calm investor jitters about the financial health of Fannie and Freddie.
They are ''working through this challenging period,'' Paulson told lawmakers. Asked whether such companies could pose a risk to the U.S. financial system, Paulson replied: ''In today's world, it is not helpful to speculate about any financial institution and systemic risk.''
James Lockhart, director of the Office of Federal Housing Enterprise Oversight, said after the close of trading that the companies' capital levels are ''well in excess'' of government requirements.
Meanwhile, politicians vowed to intervene if necessary. ''They cannot and will not fail,'' presumptive Republican presidential nominee Sen. John McCain of Arizona told reporters.
''If they need additional support, Congress will act quickly,'' said Sen. Charles Schumer, D-N.Y.
The two companies are coping with worries that they won't be able to withstand soaring losses from foreclosures and home loan defaults.
Washington-based Fannie Mae raised $7.4 billion in May to fortify its balance sheet. McLean, Va.-based Freddie Mac plans to raise $5.5 billion, but has been waiting to initiate the offerings because its stock is not yet registered with the Securities and Exchange Commission.
Congress created Fannie in 1938 and Freddie in 1970 to keep money flowing into the home-loan market by buying up mortgages and bundling them into securities for sale to investors worldwide - thereby making homeownership affordable for low- and middle-income Americans.
Today the companies hold or guarantee around $5.3 trillion in home-loan debt, though under a 1992 law they are required to hold only a fraction of what is mandated for commercial banks as a financial cushion against risk.
* Wall Street companies didn't borrow from the Federal Reserve's emergency lending program over the past week. They borrowed $1.7 billion the previous week, down from $6.1 billion the week before that. Such borrowing rose as high as $38.1 billion in early April. Investment houses were given loan privileges similar to commercial banks in March after a run on Bear Stearns pushed the nation's fifth-largest investment bank to the brink of bankruptcy and raised fears other Wall Street firms might be in jeopardy.
* Lehman Brothers Holdings Inc. fell to an eight-year low in New York trading. Once the largest U.S. underwriter of mortgage-backed bonds, Lehman's stock declined $2.44, or 12 percent, to $17.30 in New York Stock Exchange composite trading, the lowest level since Feb. 28, 2000.
* On his first day as the new CEO of Wachovia Corp., former Treasury Undersecretary and Goldman Sachs Group Inc. executive Robert Steel saw the stock tumble to a 17-year low and faced questions about his ability to rescue the nation's fourth-largest bank from its own missteps and the roiling credit market. The stock closed down $1.16, or 8.1 percent, to $13.13 in New York trading Thursday. Earlier, shares hit $12.65, a 17-year low.
