Freddie (FRE) & Fannie (FNM) 01 (May 08 - Feb 12)

[ishak]

Fannie Mae Shakes Up Top Financial Management
Reuters, 27 Aug 2008

Battered mortgage-finance company Fannie Mae announced a sweeping management shake-up in an effort to come to grips with mounting credit losses and a shrinking capital base.

The company's chief financial officer, Stephen Swad, was replaced and the chief business officer, Peter Niculescu, will take on an expanded role.

Fannie Mae also appointed a new chief financial officer and chief risk officer, effective immediately. Daniel Mudd, the company's chief executive, will remain in place.

"This team will be responsible for meeting the dual objectives of conserving capital and controlling credit losses while Fannie Mae continues to provide crucial liquidity to the U.S. housing and mortgage markets," Mudd said in a statement.

The announcement came after the market closed.

Earlier Wednesday, both Fannie Mae and Freddie Mac rallied for a third straight day as investors grew more confident their shareholdings would not be wiped out by any government intervention.

Merrill Lynch became the latest major Wall Street bank to cast doubt on speculation the Treasury would directly support the companies, since both have adequate capital to offset losses for "several quarters."

The Merrill note on Tuesday follows similar comments by Goldman Sachs Group and Citigroup that threw cold water on bailout concerns.

"Odds of Treasury stepping in and dealing with Fannie Mae and Freddie Mac before the end of this year have been considerably diminished," said Charles Lieberman, chief investment officer for Advisors Capital Management.

Fresh calculations by analysts on revenue and losses suggest the companies, while stressed, can survive on their own, avoiding a government takeover.

Shareholders expect a nationalization to be a worse-case scenario as policy-makers don't want taxpayer money rewarding companies that took risks and pocketed billions of dollars in profit through the housing boom.

A Reuters report on Friday that the Treasury believes the government-sponsored enterprises (GSEs) should remain shareholder-owned may have also dispelled fears, since the companies would have to provide profit incentives for equity holders, analysts said.

Analysts and policy-makers have conceded Fannie Mae and Freddie Mac will likely be forced to increase the amount of capital they hold relative to their investments, making them less profitable.

However, their portfolios have surged as their regulator eased a capital surplus requirement earlier this year, sending interest-income soaring.

Freddie Mac grew its portfolio to record last quarter, nearly doubling net interest income to $1.5 billion as its spread between funding costs and mortgage assets widened.

"It's a little of a race between the profits on the portfolios and the losses they are taking on defaults and mark-to-market write-downs," Lieberman said.

"At the same time, data is looking like the housing market is near a bottom." That said, the mortgage market continues to struggle.

In part, that due to Fannie Mae and Freddie Mac which have sharply increased the costs to lenders, and consumers, for obtaining a home loan.

Federal Reserve policy-makers at their Aug. 5 meeting suggested stress on the two companies was potentially worsening the housing slump.

Such fear fueled talk that a bailout was inevitable, but shares are now "overly-discounting a possibly catastrophic event," Merrill analysts, led by Kenneth Bruce, said in a note.

"Still, it will become increasingly difficult for policy-makers to ignore the GSE situation, as risks of further contraction in the mortgage market are as unpalatable as a high-profile bailout," said Merrill analysts, who kept their "underperform" rating and cut price targets on the shares.

Fannie Mae's troubles have spread to the apartment industry, where it and Freddie Mac have expanded their role as the credit crunch sidelines other commercial property funding programs.

Mid-America Apartment Communities late on Monday said its joint venture with Fannie Mae would cease making new acquisitions toward its goal of having $500 million in assets.

Perhaps the most immediate issue facing Fannie Mae and Freddie Mac—their access to debt markets—continued unabated as the former sold $2 billion in notes on Wednesday.

The issues sold at interest rates higher compared with sales a week earlier, following widening in "agency" debt in the past few days, said William O'Donnell, a strategist at UBS.

The debt of the two companies had rallied last week as bondholders bet a government bailout would make the securities more like ultra-safe U.S. Treasuries.

"The GSEs are still getting funded," he said. "And even if funding levels are getting cheaper, there's a good chance their assets (being funded) are also getting cheaper, and what we care about is potential profitability."

Fannie Mae sold its 3-month bills at 21 basis points below the London interbank offered rate, compared with 29.5 basis points below Libor last week, O'Donnell said.

The Federal Home Loan Banks, which raise money for U.S. banks' to originate residential loans, on Tuesday issued three month bills at 18 basis points less than Libor, he said.

[millionairemind]

Bank of China flees Fannie-Freddie
By Saskia Scholtes in New York and James Politi in Washington
Published: August 28 2008 23:33 | Last updated: August 28 2008 23:33

Bank of China has cut its portfolio of securities issued or guaranteed by troubled US mortgage financiers Fannie Mae and Freddie Mac by a quarter since the end of June.

The sale by China’s fourth largest commercial bank, which reduced its holdings of so-called agency debt by $4.6bn, is a sign of nervousness among foreign buyers of Fannie and Freddie’s bonds and guaranteed securities.

Foreign investors have been a mainstay of the market for such debt, but uncertainty over the mortgage financiers’ capital positions and the timing and structure of a potential government rescue has made some investors reassess their exposures. Asian investors in particular have become net sellers of agency debt, said analysts.

Federal Reserve custody data shows that for the year to July, foreign official and private investors bought an average of $20bn of agency debt a month, including debt issued by other government agencies such as Ginnie Mae and the Federal Home Loan Banks. Purchases of US Treasuries averaged $9.25bn.

From July 16 to August 20, foreign investors sold $14.7bn of agency debt, trimming their overall holdings to $972bn. They purchased $71.1bn of Treasuries in the same period.

The US Treasury was granted powers last month to extend its credit lines to Fannie and Freddie and invest in their debt and equity. The rescue plan came after a collapse in the companies’ shares heightened concerns about their ability to raise equity capital to cushion losses and whether they could maintain their access to the debt markets.

By making a historically implicit government guarantee for the mortgage financiers’ debt increasingly explicit, the Treasury sought to reassure foreign and domestic investors by providing a safety net. Fannie and Freddie have a combined $1,500bn of debt outstanding.

This weekend, the Group of Twenty developed and advanced developing countries will be holding a preparatory meeting in Brazil. Although the crisis at Fannie Mae and Freddie Mac is not on the agenda, there is speculation that Treasury officials could informally encourage big holders of agency debt and mortgage-backed securities not to scale back their investments.

After a sharp drop in the market value of their stock last week, Fannie and Freddie have made a strong recovery after successful short-term debt sales. Fannie was 13.5 per cent higher on Thursday and Freddie was up 12 per cent.

Bank of China’s disclosure on its holdings of Fannie and Freddie securities came as the bank reported a 15 per cent increase in second-quarter profit.
Copyright The Financial Times Limited 2008

[millionairemind]

Fannie and Freddie doubts grow
By Saskia Scholtes in New York
Published: August 29 2008 20:10 | Last updated: August 29 2008 20:10

Shares in Fannie Mae and Freddie Mac fell on Friday amid concerns foreign investors were reassessing their exposure to the troubled US mortgage financiers’ bonds and guaranteed securities.

Bank of China this week revealed it had cut its portfolio of securities issued or guaranteed by the two government-sponsored enterprises by a quarter, or $4.6bn, since the end of June. The sale underscored signs of nervousness among foreign buyers of Fannie and Freddie’s debt.

Shares in Freddie Mac were 12.9 per cent lower in morning trade on Friday while Fannie Mae fell 11.9 per cent, halting a strong recovery for the companies’ stocks.

Federal Reserve custody data on Thursday showed foreign official and private investors reduced their holdings of agency debt for the sixth consecutive week.

Bill O’Donnell, analyst at UBS said: “If this recent theme of cooling passions for GSE’s debt becomes a longer-term trend, then it could be problematic for the GSEs given that the central banks have taken . . . roughly 30 to 60 per cent of new GSE issuance in recent months and years.”

Foreign investors have been a mainstay of the market for agency debt in recent years but uncertainty over the mortgage financiers’ capital potisions and the timing and structure of a potential government rescue has made some investors re-evaluate their positions. Asian investors in particular have become net sellers of agency debt in recent weeks, said analysts.

The US Treasury was granted powers last month to extend its credit lines to Fannie and Freddie and to invest in their debt and equity.
Copyright The Financial Times Limited 2008

[millionairemind]

Russia says further cuts Freddie, Fannie holding
Fri Sep 5, 2008 2:30am EDT Email | Print | Share| Reprints | Single Page | Recommend (0) [-] Text [+]

SOCHI, Russia, Sept 5 (Reuters) - Russia has slightly further reduced its holdings of U.S. mortgage agencies Freddie Mac (FRE.N: Quote, Profile, Research, Stock Buzz) and Fannie Mae (FNM.N: Quote, Profile, Research, Stock Buzz), central bank's first deputy chairman Alexei Ulyukayev said on Friday.

At the start of the year Russia held $100 billion -- or over one sixth of its gold and forex reserves -- in Fannie Mae, Freddie Mac and Federal Home Loan Banks.

In the summer, officials said that the holdings had been reduced by around 40 percent through not replacing maturing paper.

[ishak]

Fannie, Freddie shares fall after report of bailout
Reuters, Sep 5, 2008

Shares of mortgage finance companies Fannie Mae and Freddie Mac dropped in after-hours trade on Friday, on concerns any U.S. Treasury rescue plan could wipe out shareholder value.

The Wall Street Journal reported after the closing bell that the U.S. Treasury is close to finalizing a plan to backstop the two government-sponsored enterprises.

Fannie shares fell 16.9 percent to $5.85, while Freddie's shares fell 7 percent to $4.74.

[millionairemind]

Northern Rock, US version

Wonder what will happen to all the debt being held by Russia and China??? Bling and gone????

Paulson Meets With Bernanke, Fannie, Freddie Chiefs (Update2)
By John Brinsley and Dawn Kopecki

Sept. 5 (Bloomberg) -- Treasury Secretary Henry Paulson met with regulators and executives of Fannie Mae and Freddie Mac today as the Bush administration prepared to announce a plan to prop up the firms hit by $14.9 billion in losses the past year.

Paulson gathered with Federal Reserve Chairman Ben S. Bernanke, Fannie Mae Chief Executive Officer Daniel Mudd, Freddie Mac CEO Richard Syron and Federal Housing Finance Agency director James Lockhart in Washington. Mudd and his aides have also been meeting at the FHFA, which oversees the two firms, with catered food scheduled for delivery at the agency through the weekend.

The meetings come a month after Paulson hired Morgan Stanley to advise on any use of taxpayer funds to recapitalize Fannie and Freddie, and before the FHFA releases an assessment of their capital. Investors have pressed for clarity on how any intervention would work, spelling out what would happen to current and future stockowners, bondholders and other creditors.

``The Treasury wants to get in front of this and to inject some capital before the markets tend to take it the wrong way,'' Bill Gross, manager of the world's biggest bond fund at Pacific Investment Management Co. in Newport Beach, California, said in a Bloomberg Television interview, referring to the capital assessment.

Weekend Forecast

``There's probably a 95 percent chance that the moment that something will happen is Sunday or Saturday,'' he said, declining to comment on whether he consulted with Treasury officials.

The Washington Post reported that government officials told Fannie and Freddie they plan to put them into a conservatorship, where common stock would be diluted while not wiped out, citing sources it didn't name. Debt and preferred shares would be protected, and the government would make quarterly injections of funds as the companies' losses warranted, the Post said.

The Treasury plans to brief Democratic presidential candidate Barack Obama's campaign team tomorrow.

Washington-based Fannie and Freddie dropped in after-hours trading. Fannie dropped $2.25, or 32 percent, to $4.79 at 5:50 p.m. in New York Stock Exchange trading and Freddie slumped $1.40, or 27 percent, to $3.70.

Paulson has made no public comment on the backstop for Fannie and Freddie since Aug. 10, when he reiterated he had ``no plans'' to use his authority. Shares in Freddie and Fannie have dropped 9 percent and 16 percent, respectively, since then as investors and analysts called for Paulson to clarify his intent.

``We are making progress on our work with Morgan Stanley, FHFA and the Fed,'' Treasury spokeswoman Brookly Mclaughlin said today in Washington.

Fed Role
Bernanke participated in today's meetings because the central bank was given a consultative role in overseeing Fannie's and Freddie's capital under the July legislation. The Fed chief said July 15 that Paulson would have the right to make changes in the two companies' management.

Mudd and Syron must approve of any government intervention under the law, unless the FHFA declares that either firm has insufficient capital. The legislation gave the Treasury the power through the end of next year to extend unlimited credit to or make equity purchases in the firms.

The FHFA was scheduled to release its own assessment of the companies' capital levels as early as this week as part of a quarterly appraisal of their finances.

Analysts have speculated that the Treasury would wipe out common shareholders, while seeking to shield preferred stockowners from total loss. Fannie and Freddie preferred shares are typically owned by banks and insurance companies. Their $5.2 trillion of debt outstanding is held by investors including Asian central banks, and would probably be guaranteed, analysts said.

New Capital

A specific fallback plan should Fannie and Freddie fail may enhance their ability to raise new private capital, said Alex Pollock, fellow at the American Enterprise Institute in Washington and former president of the Chicago Federal Home Loan Bank.

``Treasury's main concern is the debt markets, and if it was to say that it will do whatever is necessary to keep Fannie and Freddie running, the better it is for their funding,'' Pollock said. ``If Treasury makes it clear they have a plan ready to go, that would certainly help.''

Mclean, Virginia-based Freddie Mac's board this week relaxed its ownership rules to make it easier for investors to take a large stake in the company. It rolled back a rule in its bylaws that precluded owners with a 20 percent or more controlling interest from voting without the approval of all other shareholders.

Debt Sales

The two companies need to sell billions of dollars of bonds each month to pay off maturing debt, and have continued to issue securities this week.

Mudd was accompanied by Fannie General Counsel Beth Wilkinson and Chairman Stephen Ashley in his visit to FHFA this afternoon.

FHFA spokeswoman Stefanie Mullin declined to comment, as did Mark Lake at Morgan Stanley.

The Wall Street Journal reported earlier that Paulson is close to completing a plan that includes changes of senior management, according to an unidentified person familiar with the matter. The Journal also said the plan involved what it called a creative use of the Treasury's powers, without citing anyone.

[ishak]

Paulson Plans to Bring Fannie, Freddie Under Government Control
Sept. 6 2008, Bloomberg

Treasury Secretary Henry Paulson is preparing to announce plans to bring Fannie Mae and Freddie Mac under government control, seeking to halt the crisis of confidence in the companies that make up almost half the U.S. mortgage market.

Paulson met with Fannie Mae Chief Executive Officer Daniel Mudd and Freddie Mac CEO Richard Syron yesterday to brief them on the decision to put the companies into a conservatorship, where they would be removed from their jobs, according to a person briefed on the discussions. A public announcement is expected this weekend, the person said.

The decision follows the Treasury chief's repeated comments to lawmakers in July that he wasn't likely to use taxpayer funds to prop up the federally chartered, shareholder-owned firms hit by $14.9 billion in losses the past year. The shares of both companies slid since Paulson won powers to inject unlimited funds in the companies, and their borrowing costs rose.

Pacific Investment Management Co., manager of the world's biggest bond fund, and other large investors may put in their own money once the Treasury decides to inject government funds, said Newport Beach, California-based Pimco fund manager Bill Gross, in a Bloomberg Television interview.

"They have to open their wallet,'' Gross said, predicting that the Treasury will act this weekend before the Federal Housing Finance Agency releases an assessment of Fannie's and Freddie's capital.

Briefing Campaigns

Paulson gathered with Federal Reserve Chairman Ben S. Bernanke, FHFA director James Lockhart, Syron and Mudd in Washington. The Treasury plans to brief Democratic presidential candidate Barack Obama's campaign team today and has contacted Republican contender John McCain's staff about its intentions.

The meetings come a month after Paulson hired Morgan Stanley to advise on any use of taxpayer funds to recapitalize Fannie and Freddie, which account for almost half of the $12 trillion mortgage market. A government takeover would be the latest attempt to blunt the impact of the yearlong credit crisis, after the Fed provided financing for Bear Stearns Cos.'s takeover by JPMorgan Chase & Co.

Washington-based Fannie and Freddie dropped in after-hours trading. Fannie fell $2.25, or 32 percent, to $4.79 at 5:50 p.m. in New York Stock Exchange trading and Freddie slumped $1.40, or 27 percent, to $3.70.

Shareholder Fate

The Washington Post reported that the government would make quarterly injections of funds as the companies' losses warranted, avoiding a large up-front taxpayer cost, citing sources it didn't name. Debt and preferred shares would be protected, and common stock would be diluted while not wiped out, the Post said.

The New York Times said most or all of both the common and preferred shares would be worth little or nothing.

"We are making progress on our work with Morgan Stanley, FHFA and the Fed,'' Treasury spokeswoman Brookly Mclaughlin said yesterday in Washington, declining to comment on any specific plans. FHFA spokeswoman Stefanie Mullin declined to comment, as did Mark Lake at Morgan Stanley.

Bernanke participated in yesterday's meetings because the central bank was given a consultative role in overseeing Fannie's and Freddie's capital under legislation approved in July. Paulson's decision won the approval of Bernanke and Lockhart, the person briefed on the discussions said.

The FHFA has the authority to place Fannie or Freddie into conservatorships or receiverships under the law. The legislation that President George W. Bush signed July 30 also gave the Treasury the power through the end of next year to extend unlimited credit to or make equity purchases in the firms.

Conserve Assets

Under a conservatorship, the authorities would aim to preserve Fannie and Freddie assets, rather than dispose of them, the law says.

The FHFA was scheduled to release its assessment of the companies' capital levels as early as this week as part of a quarterly appraisal of their finances.

Analysts have speculated that the Treasury would wipe out common shareholders, while seeking to shield preferred stockowners from total loss. Fannie and Freddie preferred shares are typically owned by banks and insurance companies. Their $5.2 trillion of debt outstanding is held by investors including Asian central banks, and would probably be guaranteed, analysts said.

"Treasury's main concern is the debt markets, and if it was to say that it will do whatever is necessary to keep Fannie and Freddie running, the better it is for their funding,'' said Alex Pollock, fellow at the American Enterprise Institute in Washington and former president of the Chicago Federal Home Loan Bank.

The two companies need to sell billions of dollars of bonds each month to pay off maturing debt, and have continued to issue securities this week.

Losses Mount

Fannie and Freddie have reported $14.9 billion in net losses for the past four quarters as loan delinquencies rose. Fannie had $47 billion of capital as of June 30, according to company filings. The company is required by its regulator to hold $37.5 billion. Freddie's capital stood at $37.1 billion, compared with a requirement of $34.5 billion, filings show.

Mudd was accompanied in his meetings at FHFA yesterday by Fannie General Counsel Beth Wilkinson and Chairman Stephen Ashley. Last week, he shook up the company's management in an effort to restore investor confidence, replacing three top deputies.

The market capitalizations of Fannie and Freddie slid with their shares this year as investors lost confidence in their ability to offset losses. Fannie's is now $7.6 billion, down from $38.9 billion at the end of last year. Freddie's has fallen to $3.3 billion, from $22 billion over the same period.

Fannie Mae was created in 1938 as part of President Franklin D. Roosevelt's New Deal plan. With the Vietnam War pressuring the federal budget, Fannie Mae was split from the government in 1968, and shares in the company were sold to the public. Freddie Mac was created in 1970 to provide competition for Fannie Mae.

[millionairemind]

Fannie, Freddie Capital Concerns Prompt Paulson Plan (Update1)
By Dawn Kopecki and Alison Vekshin

Sept. 7 (Bloomberg) -- Treasury Secretary Henry Paulson decided to take control of Fannie Mae and Freddie Mac after a review found the beleaguered mortgage-finance companies used accounting methods that inflated their capital, according to people with knowledge of the decision.

Paulson will hold a press conference at 11 a.m. today in Washington, according to a statement. Morgan Stanley, hired by the Treasury to probe the companies' finances, concluded the accounting, while legal, enabled Freddie, and to a lesser extent Fannie, to overstate the value of their reserves, according to the people who declined to be identified because the findings are confidential.

The Treasury plans to put Fannie and Freddie into a so- called conservatorship and pump capital into the companies, House Financial Services Committee Chairman Barney Frank said in an interview yesterday. The government would make periodic capital injections by buying convertible preferred shares or warrants, according to a person briefed on the plan. Paulson is seeking to end a crisis of confidence in the companies sparked by concern the companies didn't have enough capital to weather the biggest housing slump since the Great Depression.

The Treasury was ``convinced that the markets simply wouldn't respond until after something like this,'' said Frank, who was brief by Paulson. ``I think it's an important combination.''

Debt Holders Protected

Paulson gathered Federal Reserve Chairman Ben S. Bernanke, Federal Housing Finance Agency Director James Lockhart, Fannie Chief Executive Officer Daniel Mudd and Freddie CEO Richard Syron to discuss the plan to take control of the government- sponsored enterprises, which have operated as private shareholder-owned corporations for almost 40 years. Lockhart will also speak at today's press conference, the statement said.

Holders of the companies' common and preferred stock are ``very unlikely to come out of this at all happy,'' and the chief executive officers will be forced out, Frank said. Senior and subordinated debt holders will likely be protected, said other people who were briefed on the plan.

Fannie and Freddie own or guarantee almost half of the $12 trillion in U.S. home loans and the government had been leaning on the companies to help pull the economy out of the housing crisis. Instead, they got caught in the same slump that left the world's banks with more than $500 billion of losses since the collapse of the subprime-mortgage market last year.

Rising Costs

Concern over the companies' capital pushed their borrowing costs to record levels over U.S. Treasuries, sent their common and preferred stocks tumbling and boosted mortgage rates. Washington-based Fannie is down about 66 percent in New York Stock Exchange trading since the end of June. McLean, Virginia- based Freddie has fallen about 69 percent.

Paulson met with Mudd, 50, and Syron, 64, Sept. 5 to tell them of the decision to remove the executives from their jobs, according to two people briefed on the discussions. Mudd, who replaced three top executives almost two weeks ago, is negotiating with regulators to stay on in a consultative role for several months, according to people with knowledge of the talks.

A government takeover would be the latest attempt to blunt the impact of the yearlong credit crisis, after the Fed provided financing for Bear Stearns Cos.'s takeover by JPMorgan Chase & Co.

``They have to open their wallet,'' Bill Gross, manager of the world's biggest bond fund at Newport Beach, California-based Pacific Investment Management Co. About 61 percent of Gross's holdings were mortgage-backed securities as of June 30, mostly debt guaranteed by Fannie, Freddie or government agency Ginnie Mae, according to data on Pimco's Web site.

Obama, McCain Briefed

Pimco and other large investors may put in their own money once the Treasury decides to inject government funds, Gross said Sept. 5 in a Bloomberg Television interview.

Paulson hired Morgan Stanley a month ago to advise on Fannie and Freddie. Mark Lake, a spokesman for Morgan Stanley, declined to comment. Paulson also consulted with Bank of America Corp. Chief Executive Officer Kenneth Lewis on his plan, according to people with knowledge of the talks. Bank of America spokesman Scott Silvestri declined to comment.

The Treasury briefed Democratic presidential candidate Barack Obama yesterday and has contacted Republican contender John McCain's staff. Officials also discussed the plans with House Speaker Nancy Pelosi, Senate Majority Leader Harry Reid and Senate Banking Committee Chairman Christopher Dodd.

``We are making progress on our work with Morgan Stanley, FHFA and the Fed,'' Treasury spokeswoman Brookly Mclaughlin said Sept. 5 in Washington, declining to comment on any specific plans. FHFA spokeswoman Stefanie Mullin declined to comment.

Losses Grow

Fannie was created by the government in 1938 as part of President Franklin D. Roosevelt's New Deal. Freddie was chartered in 1970 to compete with Fannie.

As losses on the mortgages grew late last year, the companies recorded $14.9 billion in combined net losses, eating into their capital. Fannie raised $14.4 billion since November and Freddie sold $6 billion of preferred securities. Plans for a $5.5 billion sale were delayed as the company's fortunes sank.

Fannie had $47 billion of capital as of June 30, according to company filings. The company is required by its regulator to hold $37.5 billion. Freddie's capital stood at $37.1 billion, compared with a requirement of $34.5 billion, filings show.

Critics including former Federal Reserve Chairman Alan Greenspan and Richmond Federal Reserve Bank President Jeffrey Lacker have called for the companies to be nationalized. William Poole, the former head of the St. Louis Fed said in July that Freddie Mac is technically insolvent and Fannie Mae's fair value may be negative next quarter.

Fed Involvement

Fannie and Freddie dropped in after-hours trading on Sept. 5. Fannie fell $2.25, or 32 percent, to $4.79 at 5:50 p.m. in New York Stock Exchange trading and Freddie slumped $1.40, or 27 percent, to $3.70. The market value of Fannie's $21.7 billion in preferreds had dropped 64 percent to $7.87 billion late last month, according to Friedman Billings & Ramsey & Co. The market value of Freddie's $14.1 billion in preferreds has fallen 61 percent to $5.44 billion.

Fannie's market capitalization is now $7.6 billion, down from $38.9 billion at the end of last year. Freddie's has fallen to $3.3 billion, from $22 billion over the same period.

Bernanke participated in the meetings because the central bank was given a consultative role in overseeing Fannie's and Freddie's capital under legislation approved in July. Paulson's decision won the approval of Bernanke and Lockhart, the person briefed on the discussions said.

Conservatorship

The FHFA has the authority to place Fannie or Freddie into conservatorships or receiverships under the law. The legislation that President George W. Bush signed July 30 also gave the Treasury the power through the end of next year to extend unlimited credit to or make equity purchases in the firms.

Under a conservatorship, the authorities would aim to preserve Fannie and Freddie assets, rather than dispose of them, the law says.

The FHFA was scheduled to release its assessment of the companies' capital levels as early as last week as part of a quarterly appraisal of their finances.

Analysts have speculated that the Treasury would wipe out common shareholders, while seeking to shield preferred stockowners from total loss. Fannie and Freddie preferred shares are typically owned by banks and insurance companies. Their $5.2 trillion of debt outstanding is held by investors including Asian central banks, and would probably be guaranteed, analysts said.

Senior Position

Frank said the federal government will take a senior repayment position to ``all shareholders, preferred and common.''

The Treasury is ``going beyond no dividends, I believe, in terms of what's going to happen to the shareholders,'' Frank said. ``I think shareholders are going to find themselves in a very subordinate position.''

``Treasury's main concern is the debt markets, and if it was to say that it will do whatever is necessary to keep Fannie and Freddie running, the better it is for their funding,'' said Alex Pollock, fellow at the American Enterprise Institute in Washington and former president of the Chicago Federal Home Loan Bank.

Fannie and Freddie sell billions of dollars of bonds each month to pay maturing debt. As of mid-August the companies had $223 billion of debt to refinance by the end of the quarter.

While they have continued to issue securities, Fannie and Freddie have paid record yields over U.S. Treasuries to attract investors reluctant to take on the debt even with its implicit backing from the government.

Freddie sold $3 billion of two-year reference notes this week at 3.229 percent, or 97.5 basis points more than Treasuries of similar maturity, the highest since at least 1998, based on company and market data compiled by Bloomberg.

[HengHeng]

H. K. liaoz.. LOL

[millionairemind]

Paulson Engineers U.S. Takeover of Fannie, Freddie (Update4)

By Rebecca Christie and Dawn Kopecki

Sept. 7 (Bloomberg) -- The U.S. government seized control of Fannie Mae and Freddie Mac after the biggest surge in mortgage defaults in at least three decades threatened to topple the companies making up almost half the U.S. home-loan market.
``Our economy and our markets will not recover until the bulk of this housing correction is behind us,'' Treasury Secretary Henry Paulson, who engineered the takeover along with Federal Housing Finance Agency Director James Lockhart, said in Washington today. ``Fannie Mae and Freddie Mac are critical to turning the corner.''

The FHFA will take over Fannie and Freddie under a so- called conservatorship, replacing their chief executives and eliminating their dividends. The Treasury can purchase up to $100 billion of a special class of stock in each company as needed to maintain a positive net worth. It will also provide secured short-term funding to Fannie, Freddie and 12 federal home-loan banks, and purchase mortgage-backed debt in the open market.
Full story
http://www.bloomberg.com/apps/news?pid= ... refer=home