US mortgage finance giants Fannie Mae and Freddie Mac saw their share prices plummet on Wednesday amid heightened concerns about their ability to ride out the credit crisis without government help.
The two mortgage giants, which prop up a large part of the US mortgage market, have been at the center of a financial storm in recent weeks, especially after both companies revealed hefty second-quarter losses.
Freddie Mac was forced to offer “unusually rich terms” to investors in relation to a US$3 billion securities auction, adding to recent worries.
“The steep price of new debt raises the level of difficulty for both institutions in remaining solvent as higher interest rate costs cuts steeply into their operating margins, threatening both agencies with even deeper losses in coming quarters,” said Fred Dickson at DA Davidson & Co.
The US Treasury, which was recently empowered to extend credit and pump liquidity into Fannie Mae and Freddie Mac if necessary, is keeping a close watch on the companies’ fortunes.
“As you would expect, we have been in communication with the companies for months to receive updates. We’ve also been communicating with their regulator and the Federal Reserve,” Treasury spokeswoman Jennifer Zuccarelli said.
But investors continue to sell the companies’ stocks.
Fannie Mae’s shares closed down a heavy 26.8 percent at US$4.40, while Freddie Mac finished 22 percent lower at US$3.25.
Both companies’ shares have fallen more than 90 percent in the past year since the credit crunch erupted last August, triggering losses at the two firms.
The Treasury on Monday had played down a report by Barron’s weekly suggesting the government could be poised to extend significant financial aid to the struggling mortgage-finance giants.
Zuccarelli said on Monday that the Treasury had no intention of using its special authority to extend emergency financial aid to the ailing companies.
Fannie Mae chief executive Daniel Mudd told the CNBC business channel on Wednesday that the company had not asked the government for financial assistance. He also said such assistance had not been offered by the Treasury.
The two firms, which are chartered by Congress to boost home ownership but are shareholder-owned, have endured hefty losses amid a lingering US housing market slump and as losses on mortgage securities continue rattling credit markets.
Concern about the two firms has unsettled investors because together they own or guarantee some US$5.2 trillion in loans, or about 40 percent of the total value of home loans in the US.
US President George W. Bush sought to restore confidence in the two mortgage finance giants as well as the wider housing market by recently approving a sweeping housing rescue plan — the Housing and Economic Recovery Act — designed to help 400,000 homeowners avert foreclosure.
The bill, which Bush signed into law late last month, empowers the Treasury to extend credit to Fannie Mae and Freddie Mac if Treasury Secretary Henry Paulson deems such a move necessary.
RULES BROKEN: The MAC warned Chinese not to say anything that would be harmful to the autonomous status of Taiwan or undermine its sovereignty A Chinese couple accused of disrupting a pro-democracy event in Taipei organized by Hong Kong residents has been deported, the National Immigration Agency said in a statement yesterday afternoon. A Chinese man, surnamed Yao (姚), and his wife were escorted by immigration officials to Taiwan Taoyuan International Airport, where they boarded a flight to China before noon yesterday, the agency said. The agency said that it had annulled the couple’s entry permits, citing alleged contraventions of the Regulations Governing the Approval of Entry of People of the Mainland Area into the Taiwan Area (大陸地區人民進入台灣地區許可辦法). The couple applied to visit a family member in
CELEBRATION: The PRC turned 75 on Oct. 1, but the Republic of China is older. The PRC could never be the homeland of the people of the ROC, Lai said The People’s Republic of China (PRC) could not be the “motherland” of the people of the Republic of China (ROC), President William Lai (賴清德) said yesterday. Lai made the remarks in a speech at a Double Ten National Day gala in Taipei, which is part of National Day celebrations that are to culminate in a fireworks display in Yunlin County on Thursday night next week. Lai wished the country a happy birthday and called on attendees to enjoy the performances and activities while keeping in mind that the ROC is a sovereign and independent nation. He appealed for everyone to always love their
‘EXTREME PRESSURE’: Beijing’s goal is to ‘force Taiwan to make mistakes,’ Admiral Tang Hua said, adding that mishaps could serve as ‘excuses’ for launching a blockade China’s authoritarian expansionism threatens not only Taiwan, but the rules-based international order, the navy said yesterday, after its top commander said in an interview that the Chinese People’s Liberation Army (PLA) could blockade the nation at will. The object of Beijing’s expansionist activities is not limited to Taiwan and its use of pressure is not confined to specific political groups or people, the navy said in a statement. China utilizes a mixture of cognitive warfare and “gray zone” military activities to pressure Taiwan, the navy said, adding that PLA sea and air forces are compressing the nation’s defensive depth. The navy continues to
MISSILE MISSION: The Chungshan Institute of Science and Technology said it does not make policy, but would be glad to obtain certification to assemble the missiles The Ministry of National Defense-affiliated Chungshan Institute of Science and Technology is in the process of getting certified to assemble an additional 1,985 Stinger missiles on top of those from US arms sales, a senior defense official said yesterday. Washington is to send a team to Taiwan to evaluate the institute’s manufacturing capabilities and information security, said the official, who commented on condition of anonymity. The ministry initially bought 500 missiles for the army and navy, but later increased the order to 2,485 in response to an increase in Beijing’s military activities around the nation, and to meet the army’s urgent need
RSS