WASHINGTON — Whether or not the government is actually on the verge of taking over mortgage-finance companies Fannie Mae and Freddie Mac, investor fears that a bailout is imminent could turn such a worst-case scenario into reality.
Amid renewed concern that shareholders will wind up with nothing if the government intervenes to bail out the troubled companies, shares in the mortgage-finance giants tumbled Monday to their lowest levels in nearly two decades. Fannie Mae’s stock slid more than 22 percent, or $1.76, to $6.15 on Monday, while shares of Freddie Mac fell 25 percent, or $1.46, to $4.39.
“Some of these things become self-fulfilling prophecies because market confidence is so fragile,” said Karen Shaw Petrou, managing partner of consulting firm Federal Financial Analytics in Washington.
However, a more likely scenario, analysts say, would take the form of emergency loans to Fannie and Freddie from the Federal Reserve or Treasury Department.
The Treasury Department late last month gained the authority to boost Fannie and Freddie through an investment or a loan should the companies need their finances propped up because of soaring losses from bad mortgages.
The new government power for several weeks quieted worries that the companies could collapse.
But investors were spooked once again over the weekend when a Barron’s magazine article, citing an anonymous Bush administration source, reported that the government is pressing the companies to raise more money to guard against losses but doesn’t expect them to succeed. The Barron’s report said the government may buy preferred stock in the companies, wiping out common shareholders.
