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Fannie, Freddie On a Tightrope
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The companies have long been popular overseas investments, especially in Asia, where the Treasury plan has helped to calm nerves. Deborah Schuler, a senior vice president for Moody's, said the threat to Asian banks and insurers from the problems facing Fannie Mae and Freddie Mac are limited. "The U.S. government has made it very clear they back Fannie and Freddie, and so there shouldn't be a need to sell them," she said.
Sunil Garg, head of equity research for Asia at J.P. Morgan Chase, said he also does not believe that any Chinese, Japanese or other Asian holders of Fannie Mae and Freddie Mac securities are selling.
At the same time, the recent difficulties at the companies have helped send U.S. mortgage rates to their highest levels in a year. And those troubles could get worse. On Friday, the credit-rating firm Standard & Poor's said it might downgrade its ratings on some of the companies' bonds because of difficult market conditions, potentially increasing their borrowing costs.
Financial experts said the abrupt decline in the companies' stock prices earlier this month had not been unexpected.
"This was like a ticking time bomb that just happened to have gone off right now," said Desmond Lachman, a scholar at the American Enterprise Institute. The reason, he said: "They were operating at incredibly low capital ratios."
Syron said the government's decades-old goal of assuring that long-term mortgages are available to the public at reasonable prices could be accomplished only by firms that are "highly leveraged" and operate on a thin cushion of capital. He added that the dramatic swing in his firm's stock was "inherent in the system in which you have very highly volatile markets."
But some financial analysts attributed the fall in the stock prices to the finances of Fannie Mae and Freddie Mac.
"What surprised me at the time was that it hadn't collapsed earlier," Lucas said.
Special correspondent Ariana Eunjung Cha in Shanghai and staff writer Dina ElBoghdady in Washington contributed to this report.
