Freddie Mac, Fannie Mae Shares Sink Nearly 50 Percent

July 11, 2008 11:49 a.m. EST

New York, NY (AHN) -Beleaguered lenders Fannie Mae and Freddie Mac continued a downward collapse on Friday, dropping around 50 percent, as they may post billions in losses.

Over the last few weeks investors have been speculating that Freddie Mac is finding it difficult to raise fresh capital to shore up its weakened balance sheet, following the report that authorities are discussing a post-failure scenario.

The two largest U.S. providers of financing for home loans tumbled as analysts are concerned over reports that banks may unload more mortgage bonds before a government bail-out.

According to analysts from Fox-Pitt Kelton and Friedman, Billings, Ramsey & Co., the troubled firms have to post more than $77 billion in losses and write-downs before the authorities start helping them out.

Shares of Fannie Mae tumbled by $4.22 or 32 percent to $8.98 and Freddie Mac plunged by as much as $2.66 or 33.2 percent to $5.34 in trading at 11:32 a.m. on Friday.

Stocks declined in early trading to the lowest in more than 17 years over reports that the companies, which support $5 trillion in home loans, may not be able to raise enough capital.

Over the last 12 months, shares of the government-chartered, publicly traded companies have incurred more than 80 percent of losses. Fannie Mae and Freddie Mac were trading at about $60 a year ago.

For the shares this year, Fannie is down 67 percent and Freddie 77 percent.

On Thursday, Freddie Mac responded by saying that it is not likely to raise capital until after posting the second quarter earnings report next month.

The financial shares led by Fannie Mae and Freddie Mac pulled down U.S. stocks on Wall Street, including the shares of other banking firms.

Shares of firms continued their downward rally for the third time on Thursday as reports indicated that the companies are on the watch-list of the U.S. Treasury Department for months.

But U.S. Treasure Secretary Henry Paulson defended the two firms, saying they had enough money. Paulson added that the two lenders play important roles in the U.S. housing market.