The new chief executive of Freddie Mac is telling Washington what Wall Street already has figured out: Freddie is not going to grow as fast as investors are used to, and its direct competitor in mortgage investing, Fannie Mae, probably won't either.

Freddie "can't and shouldn't" keep growing "the way it grew in the past," said Richard F. Syron, who started in January after an accounting scandal toppled Freddie Mac's last chief executive.

What Syron is saying is both obvious and unthinkable.

Obvious, because when companies get as big as Freddie and Fannie, growth gets harder and harder. Fannie, for example, managed to double its earnings per share over the past five years, but probably can't double them again in the next five -- not with mortgage rates rising, refinancing slowing down and everybody else in the business fighting for market share.

Unthinkable, because for the past decade growth has been the reason investors buy stock in Fannie and Freddie.

A significant slowdown in growth will require rewriting the rationale for investing in the two companies. That revision is well underway, analysts say, and is reflected in what's happening to the stocks, neither of which has gone anywhere in the past three years.

One reason the stocks are stalled is the cloud cast by Freddie's accounting problems, which are forcing it to restate its financial reports for the past three years. The mere mention of "accounting problems" is enough to scare away investors already frightened by Enron, WorldCom and others.

Another reason is the political debate in Washington over whether the government ought to tighten the regulation of Fannie and Freddie, created by Congress to encourage homeownership by raising money for mortgages. Although Armando Falcon Jr., director of the Office of Federal Housing Enterprise Oversight, has become an aggressive regulator, Congress and the White House have yet to enact tough changes.

But the biggest factor may be that the professional investors who own about 90 percent of Fannie's and Freddie's shares are coming to the conclusion that they are no longer growth stocks.

When you look at who owns Fannie and Freddie, you see "a transition from some of the higher-growth guys to some of the value guys," said analyst Paul Miller of Friedman, Billings, Ramsey Group Inc., the Arlington investment firm. FBR, which rates both stocks "buys," does not do investment banking business for either firm but has extensive investments in mortgage-backed securities guaranteed by Fannie and Freddie.

Growth-stock investors look for companies whose steadily expanding business will regularly boost their stock prices. Value investors look for bargains --

companies with stock that is underpriced compared with similar companies or with what the stock sold for in the past.

At their peak in the late 1990s, Fannie and Freddie stock sold for roughly 25 times earnings per share. Today Fannie's stock sells for 8.2 times earnings. Freddie's price-to-earnings ratio can't be calculated because the company is still revising its financial statements for the past three years. At this point nobody knows how much profit Freddie made.

With a P/E of less than 9, Fannie's shares are valued at less than half the average for the stocks in the Standard & Poor's 500-stock index, which is 21 times earnings. Other financial companies that are big players in the mortgage market do better. Bank of America Corp. sells for 10 times earnings, Citicorp for 12.6 times, Wells Fargo Corp. for 15 times.

Neither Fannie or Freddie will publicly discuss their stock prices.

Fannie's P/E over time has averaged about 80 percent of the S&P 500 average P/E, said analyst David S. Hochstim of Bear, Stearns & Co. (A spokesman said Bear, Stearns does extensive business, including investment banking, with Fannie and Freddie, and that Hochstim or a member of his family owns Freddie Mac shares.)

Both Hochstim and Miller said Syron's acknowledgement of slower growth was no surprise to investors.

"Both companies have enjoyed very rapid growth over the last four years," Hochstim said in a telephone interview. "I don't think anybody expected that would continue forever."

Hochstim projected that Fannie and Freddie can increase their mortgage holdings as the overall mortgage market grows -- 6 percent to 9 percent a year -- "which still translates into earnings growth well in excess of that." Miller puts future growth at 8 percent to 10 percent. That's decent, but not what it's been in the past.

And right now both Fannie and Freddie are shrinking, not growing. Since the beginning of the year, Fannie's mortgage holdings have shrunk by about 5 percent and Freddie's by about 7 percent. In a recent conference call with investors, Fannie Mae's vice chairman and chief financial officer, Timothy Howard, said mortgage holdings are continuing to shrink this quarter. "With this additional quarter of decline, it's likely that portfolio growth for the year as a whole will fall short of double-digits," he said. He hasn't projected growth past this year.

Representatives of both Fannie and Freddie say they have been selling, not buying, mortgage-backed securities because market conditions are not attractive. The interest rates Fannie and Freddie must pay to borrow money have gone up in recent months and the interest rates they can earn on mortgage investments have gone down, creating a pinch that makes it hard to make money without taking a lot of risk.

Recently, banks and savings-and-loan associations have invested much more heavily in mortgages than usual. Demand for loans is soft because of the slow economy, so the banks have extra deposits that need to be put to work. They have been so eager to invest in mortgages that they have driven up the prices of mortgage securities to the point where Fannie and Freddie consider them overpriced.

Hochstim said he considers staying out of the market a smart strategy because the value of mortgage securities will go down if interest rates continue to rise, as almost everyone expects. Freddie and Fannie are very careful to protect themselves from such potential losses -- more careful than the banks that are bulking up on mortgages, Hochstim and Miller agreed.

It's also a politically savvy move, Miller added. "Both these companies know that by growing their retained portfolio [of mortgage securities] so fast they put big targets on their back," he said. Much of the criticism of Fannie and Freddie comes from rivals in the mortgage investing business who complain that Fannie and Freddie steal their business, using their government charters to unfair advantage.

While Miller thinks that shrinking their holdings also shrinks the size of the political targets, critics who have Fannie and Freddie in their sights don't agree. "I think they're trying to make the best of a short-term situation," said Bert Ely, a frequent critic of the mortgage twins and a consultant for the banking industry.

Ely is also skeptical of Syron's "slow growth" statements. "He's trying to convey this idea that we have had a permanent change in philosophy. I don't buy that for a minute. What he is trying to do is stave off" regulatory reform. Fannie and Freddie say regulatory changes could hurt their ability to invest in mortgages and help the housing market.

Another Syron strategy was floated at a recent retreat for top Freddie Mac executives held away from the company's McLean headquarters, a source who was there reported.

Syron is said to have wondered aloud whether Freddie could quiet criticism by coming up with a way for home buyers to share some of the fortunes of the business with shareholders. One possibility: a mathematical formula that would split profits between shareholders and homeowners once Freddie surpasses the profit margins of comparable privately chartered companies. When Freddie earned more than the 15-percent-a-year return on investment that is typical for financial institutions, the formula would somehow divert part of the excess profits to programs for affordable housing.

Freddie hasn't come up with such a system yet, as far as is known. Analysts and critics of Freddie are dubious about whether it could be done or whether Freddie would want to do it.

But the idea gets at the biggest criticism of Fannie and Freddie -- that they are taking advantage of their government charters to compete unfairly with private companies. The Federal Home Loan Banks, which also were chartered by Congress to provide money for mortgages, already are required to put a part of their profits into affordable housing.

Like Syron's statement that it's not a good idea to keep growing as fast as possible, the acknowledgement that Fannie and Freddie have an obligation to share the success the government gave them is a warning to investors of a more realistic assessment of the prospects for the business.

Even if Freddie and Fannie lose their status as perpetual growth stocks, they will remain attractive to Washington investors.

Jerry Knight can be e-mailed at knightj@washpost.com

Richard F. Syron, chairman and chief executive of Freddie Mac, acknowledged that the company's stock is no longer a rapid-growth issue.