Aid to Fannie, Freddie May Top Expectations

"They're going to be insuring or buying mortgages that nobody in the private sector wants," said Peter Schiff, president of Euro Pacific Capital. "The only people who would loan money to Americans right now is the government. Nobody would else do it."

Fannie Mae and Freddie Mac's regulator says they are buying only high-quality mortgages.

Finally, the government itself has taken steps that make it more likely Fannie Mae and Freddie Mac will need its cash. The government has introduced several programs to protect debt issued by other institutions, such as banks. Fannie Mae and Freddie Mac lack this explicit federal guarantee and that has made their debt comparatively less attractive to investors, increasing what the companies have to pay to raise capital in private markets.

As a result, some analysts are concerned that Fannie Mae and Freddie Mac may run out of funding.

"There is a huge and serious liquidity squeeze, and the only way Fannie and Freddie get out of that is by going to the Treasury," said Karen Shaw Petrou, an analyst with Federal Financial Analytics.

Moreover, the decision by Treasury Secretary Henry M. Paulson Jr. to abandon the plan to buy the troubled mortgage-related assets from banks and other financial firms poses a problem for Fannie Mae and Freddie Mac. Not only do the companies lose the chance to sell any of these assets to the government, the announcement Wednesday that the program had been shelved caused the value of the assets to fall.

"You're taking . . . a large buyer out of the market," said Moshe Orenbuch, an analyst at Credit Suisse.

For his part, Paulson said at his news conference that the losses at Fannie Mae this week were in the "range of what we expected and further confirms the need for our strong actions."