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Shares of Freddie Mac plummeted Friday morning as Wall Street and Washington became more convinced that the government is likely to bail out the nation`s key mortgage financiers.
Freddie Mac shares fell $3.30 (U.S.), or 41.3 per cent, to $4.70 in morning trading, while Fannie Mae fell $4.90, or 37.1 per cent, to $8.30. Both are at 17-year lows.
Fannie and Freddie play a crucial role in providing funding for home loans by buying up mortgages and packaging them as investments. If they are unable to operate, the implications could be dire.
"Without them, our economy would collapse," Piper Jaffray analyst Robert P. Napoli said in a note to clients. Mr. Napoli lowered his target on Freddie to $9 per share from $28, and on Fannie to $15 per share from $30.
Congress created Fannie in 1938 and Freddie in 1970 to keep money flowing into the home-loan market by buying up mortgages and bundling them into securities for sale to investors worldwide, thereby making home ownership affordable for low- and middle-income Americans.
Today the companies hold or guarantee around $5.3-trillion in home-loan debt, though under a 1992 law they are required to hold only a fraction of what is mandated for commercial banks as a financial cushion against risk.
Shares of Freddie Mac plummeted Friday morning as Wall Street and Washington became more convinced that the government is likely to bail out the nation`s key mortgage financiers.
Freddie Mac shares fell $3.30 (U.S.), or 41.3 per cent, to $4.70 in morning trading, while Fannie Mae fell $4.90, or 37.1 per cent, to $8.30. Both are at 17-year lows.
Fannie and Freddie play a crucial role in providing funding for home loans by buying up mortgages and packaging them as investments. If they are unable to operate, the implications could be dire.
"Without them, our economy would collapse," Piper Jaffray analyst Robert P. Napoli said in a note to clients. Mr. Napoli lowered his target on Freddie to $9 per share from $28, and on Fannie to $15 per share from $30.
Congress created Fannie in 1938 and Freddie in 1970 to keep money flowing into the home-loan market by buying up mortgages and bundling them into securities for sale to investors worldwide, thereby making home ownership affordable for low- and middle-income Americans.
Today the companies hold or guarantee around $5.3-trillion in home-loan debt, though under a 1992 law they are required to hold only a fraction of what is mandated for commercial banks as a financial cushion against risk.