Freddie and Fanny lost about half of their value overnight as investors became more certain that the government was going to have to bail out the two GSEs (Government Sponsored Enterprises.) The New York Times says that senior members of the Bush administration are considering a takeover of Freddie and Fannie that would leave their shares “worth little or nothing,” and where taxpayers would pay “any losses on mortgages they own or guarantee.”

Together, Freddie and Fanny own or guarantee more than half of the nation’s mortgages — about $12 trillion, according to the NYT.

Under a 1992 law, Fannie or Freddie could be put into conservatorship if their top regulator found that either one is “critically undercapitalized.” A conservator would have sweeping powers to overhaul them, but would not have the authority to close them.

Treasury Secretary Paulson maintains that he is in favor of supporting the GSEs in their current form.

“Today our primary focus is supporting Fannie Mae and Freddie Mac in their current form as they carry out their important mission,” Paulson said in a statement today in Washington. “We are maintaining a dialogue with regulators and with the companies.”

As of this post, Freddie is trading at 5.85. Fannie is trading at 9.83. Both are down about 25%.

U.S. Weighs Takeover of Two Mortgage Giants [NYT]
(Photo: Jonathan Ernst/Reuters)

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