Worst Fears Ease, for Now, on Mortgage Giants’ Fate – NYTimes.com
Bush administration officials had worked into the early morning
hours on Friday drawing up contingency plans to rescue the companies, Fannie Mae and Freddie Mac,
should their financial plight worsen. And when both companies’ stocks
fell 50 percent initially, some investors feared the worst.
by the end of the day, the shares rebounded after both were able to
easily continue the regular borrowing of money they need to finance
their day-to-day operations and keep the nation’s mortgage machinery
If Fannie and Freddie had been cut off from borrowing
by other financial institutions, the government might have been forced
to step in and support them.
Still, the modest relief on Friday
was tempered by concerns over what might unfold in coming weeks, should
the housing market’s woes continue and further weaken the finances of
Fannie and Freddie.
Uncertainty about the financial stability
of the companies, which lie at the heart of the nation’s housing
market, underscored their size and complexity.
which already have suffered $11 billion in losses in the last nine
months, could report new quarterly losses in August if foreclosures
The financial markets continue to show signs of
stress, underscored by the decline in the Dow Jones industrial average,
which fell below 11,000 on Friday for the first time in two years
before closing at 11,100.54, down 1.1 percent.
Shares of Freddie
Mac closed at $7.75, down more than 45 percent for the week. Fannie Mae
settled at $10.25, a 30 percent slide for the week. And a fresh sign of
industry problems emerged on Friday when the Federal Deposit Insurance Corporation seized IndyMac Bank, making it the largest bank to fail since the 1990s.
The company, an offshoot of Countrywide Financial and once one of the
nation’s largest independent mortgage lenders, was a major issuer of
After meeting with his economic policy team on
Friday morning, President Bush said that he had been briefed about the
problems confronting Fannie and Freddie by the Treasury secretary, Henry M. Paulson Jr.
“Freddie Mac and Fannie Mae are very important institutions,” the president said. “He assured me that he and Ben Bernanke will be working this issue very hard,” referring the chairman of the Federal Reserve.
in the day, Mr. Paulson sought to calm investors concerned that the
stock of Fannie and Freddie could be wiped out if the government took
over one or both of the companies and placed them under the control of
a conservator, as the law permits. The administration has prepared such
a plan if the companies continue to decline, people briefed on the plan
“Today our primary focus is supporting Fannie Mae and
Freddie Mac in their current form as they carry out their important
mission,” Mr. Paulson said. Officials said Mr. Paulson wanted to convey
the message that even under a conservatorship, the companies would not
be nationalized. Instead, a conservator would have to prepare a plan to
restore the company to financial health, much like a company in Chapter
11 bankruptcy proceedings.