Fannie, Freddie Share Prices Hit 10-Year Lows

Wary Investors Fear That Losses From Mortgage Defaults Will Increase

Shares of mortgage-finance companies Fannie Mae and Freddie Mac declined for a fourth day yesterday, falling to their lowest levels in a decade on investors' concerns that losses from mortgage defaults will grow.

Fannie Mae fell 7.6 percent, to $37.58, yesterday while Freddie Mac fell 7.9 percent, to $37.50. Both stocks are at their lowest since 1997.

With the U.S. housing market slumping to its worst point in 16 years, investors are trying to determine just how many bad loans Freddie Mac and Fannie Mae own or have guaranteed.

Fannie Mae said Nov. 9 that its third-quarter net loss more than doubled because of housing-market conditions. The shares last week had their biggest two-day decline since 1987 after investors were alarmed by a news report suggesting the District company's latest financial disclosures might mask credit losses.

Fannie Mae was downgraded by Friedman, Billings, Ramsey Group to market perform from outperform because of the prospect of rising credit losses. The Arlington securities firm reduced its price target for the stock to $35 from $60.

Freddie Mac, of McLean, is scheduled to report its quarterly financial results today. A Credit Suisse analyst warned the company may be forced to deplete some of its excess capital to cover losses and pay a dividend.

Freddie Mac and Fannie Mae must set aside 30 percent more capital than their usual minimum requirement under a federal regulation prompted by past accounting misstatements.

"Managing to the 30 percent target does limit our ability to provide liquidity to the market in these challenging conditions," said Michael Cosgrove, a Freddie Mac spokesman. "We do have to manage our capital account to make sure we meet that target."

Cosgrove declined to comment on third-quarter results.

Fannie Mae and Freddie Mac own or guarantee about 40 percent of the $11.5 trillion U.S. home loan market. Congress created the companies to increase mortgage financing by buying loans from lenders. They profit by holding mortgages and mortgage bonds as investments and by charging a fee to guarantee and package loans as securities. They see losses when defaults and foreclosures rise.

Jeff Kearns reported from New York.