Fannie, Freddie Bailout Options: Shareholders Screwed No Matter What

[Snarkoleptic]

Investors are understandably spooked about the mortgage market and likelihood of continued deterioration in the housing market.
Freddie Mac stock dipped as low as $3.89/share yesterday, off from a 52-week high of $67.20/share.
Fannie Mae stock dipped as low as $6.68/share yesterday, off from a 52-week high of $70.57/share.

This article paints a troubling scenario which will further reduce confidence and liquidity in the US mortgage market-

As the crisis worsens for mortgage giants Fannie Mae and Freddie Mac, Treasury Secretary Henry Paulson is insisting that any potential government rescue plan not benefit the companies' shareholders, according to people familiar with the matter...

How any rescue might be orchestrated remains unclear...One option would have the government buy a chunk of Fannie and Freddie's preferred stock with terms that dilute the equity of common shareholders. The Federal Reserve could support Fannie Mae or Freddie Mac in a short-term funding crisis through its lending operations, which were extended to investment banks in March with the downfall of Bear Stearns Cos. A spokeswoman said Friday the Fed hasn't discussed that possibility with either company.

More here-
http://www.clusterstock.com/2008/7/paulson-if-we-save-fannie-fnm-and-freddie-fre-shareholders-get-nothing

[Captain Hilts]

1. Freddie and Fannie have TONS of money, HUGE campuses with SUBSIDIZED cafeterias...

for employees, etc. They all but make omlettes at your cafeteria table.

Quite a racket.

[dipsydoodle]

2. Tough - life's a bitch...........

Soon as F & F reduced the levels of business they they were writing their delinquent bad debt levels expressed as a percentage of their book would've escalated. It's only when companies write more and more business that bad debt levels are masked. It could well be that they even knew that were writing crap just to keep the flywheel turning. As far as I'm aware such companies do quarterly SEC returns so the information which conveyed the risk level was just sitting there.