U.S. Treasury Working On Plan To Backup Fannie Mae, Freddie Mac

Washington, D.C. (AHN) - After the market close, the Wall Street Journal reported that the U.S. Treasury is in the final steps of a plan to backup Fannie Mae and Freddie Mac, a move that could wipe-out shareholder value.

The plan may also include changes to senior management and a capital injection. The Journal said the plan could be reported as early as this weekend. Talks between Treasury Secretary Henry Paulson, Fed Chairman Ben Bernanke as well as Fannie and Freddie executives were planned for Friday.

Speculation on whether the two government sponsored entities would require a bailout have swirled in recent months. Fannie and Freddie have both seen there share price cut in half since early July as investors rushed for the exit, unsure if the government would take them private.

"I'd be worried for the near term for anything that's not senior debt, especially common shares and preferred shares," said Martin Weiss, president of Weiss Research, according to CNBC. "For the long term I'd just be worried, period."

In afterhours trading, shares of Fannie Mae fell 32.5 percent to $4.79 while Freddie Mac shares dropped 28 percent to $5.10.