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Shares of Fannie Mae, Freddie Mac Plummet

A spokesman for Fannie Mae declined to comment. A spokeswoman for the Office of Federal Housing Enterprise Oversight, the federal agency that oversees the financial stability of the two companies, also declined to comment.

Fannie Mae, based in the District, and Freddie Mac, headquartered in McLean, help channel money to lenders so they can issue more mortgages. The two companies package mortgages into securities that are sold to investors, promising to make the payments if the borrowers default. They also invest directly in mortgages and mortgage-related securities.

The perception that the government stands behind Fannie Mae and Freddie Mac has helped keep the securities they guarantee marketable at a time when investors have lost their appetite for other mortgage-related securities. Still, the collapse of the housing market has left the companies with rising delinquencies, billions of dollars of losses and stocks that were severely deflated even before the sharp decline yesterday. The Lehman Brothers report rattled investors who were already anxious about the outlook for the housing market in general and the two government-sponsored firms in particular.

Freddie Mac has yet to fulfill a promise made to the government in March to raise new capital; the company recently said it would raise $5.5 billion, partly by issuing more common stock. Its declining stock price could make that more painful by requiring the company to issue a larger number of shares, thereby diluting the investments of current stockholders. The company will not raise the capital until it releases financial results for the quarter ended June 30, McHale said yesterday.

In addition, Freddie Mac has yet to complete the process of registering with the Securities and Exchange Commission, a long-delayed effort that involves an SEC review of its financial disclosures. McHale said the process was "progressing well" but would not say whether the SEC had expressed any significant concerns about Freddie Mac's accounting.

With Freddie Mac's additional $5.5 billion, Fannie Mae and Freddie Mac would together have about $93 billion of core capital, putting them each $13 billion over the current regulatory requirement, Harting of Lehman Brothers said. The proposed accounting change could leave them "significantly undercapitalized" and hard-pressed to raise the needed money -- an estimated $46 billion for Fannie Mae and $29 billion for Freddie Mac, Harting wrote.

Analysts interviewed yesterday said investors' fears about the potential accounting change were overblown.

"I would bet my firstborn that they will be excluded from the accounting change. It would bankrupt them," said Paul Miller of the investment firm Friedman, Billings, Ramsey Group.

"It's a panicked reaction not justified by the facts," said Howard Shapiro, an analyst at the research firm Fox-Pitt Kelton.

Requiring Fannie Mae and Freddie Mac to come up with an additional $75 billion "would mean that our housing market would come to a complete halt, nobody would be able to buy a home, and it would be devastating for the general economy," Shapiro said.

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