It has proved to be a wild and woolly week for Fannie Mae and Freddie Mac, the government-sponsored enterprises that support the U.S. mortgage-finance system. It began on Monday, with the release of a Lehman Brothers report that suggested that, under new accounting rules, the two mortgage giants would be severely undercapitalized and would need to raise tens of billions of dollars.

The Office of Federal Housing Enterprise Oversight (OFHEO), which regulates Fannie, Freddie, and the Federal Home Loan banks, tried to calm the markets. "From our standpoint, an accounting change should not drive capital. It would be no difference in the risks of the two firms," James Lockhart, OFHEO's director, told reporters at a housing conference, according to a story in the Wall Street Journal. He added: "I think it would be very strange for a regulator to let an accounting principle drive a capital decision."

Lockhart expanded his comments formally on Thursday. Fannie and Freddie "are adequately capitalized, holding capital well in excess of the OFHEO-directed requirement, which exceeds the statutory minimums. They have large liquidity portfolios, access to the debt market, and over $1.5 trillion in unpledged assets," he said in a written statement. "At a very difficult time in the market, the Enterprises have the flexibility and sound operations needed to support their mission."

But his comments had little effect. Fannie Mae, whose shares opened at $18.76 on Monday, hovered around $9 by Friday. Freddie Mac saw its shares drop from a Monday open of $14.53 to the $7 neighborhood by week's end. "We are in an environment where sound analysis appears to have been abandoned," Jerry Howard, CEO of the NAHB, said on Friday.

A New York Times story that reported that federal officials had talked about potential bailout plans for the GSEs only spooked the markets more. "The officials involved in the discussions stressed that no action by the administration was imminent, and that Fannie and Freddie are not considered to be in a crisis situation," according to the Times story. "But in recent days, enough concern has built among senior government officials over the health of the giant mortgage finance companies for them to hold a series of meetings and conference calls to discuss contingency plans."

Right now, such discussions appear to be only that, though: discussions. "Today, our primary focus is supporting Fannie Mae and Freddie Mac in their current form," said U.S. Treasury Secretary Henry Paulson. "We appreciate Congress' important efforts to complete legislation that will help promote confidence in these companies. We are maintaining a dialogue with regulators and with the companies. OFHEO will continue to work with the companies as they take the steps necessary to allow them to continue to perform their important public mission."

Regardless of Paulson's seeming reassurance, though, the swirling worry surrounding Fannie and Freddie comes at a delicate time for the housing market. The Senate appears ready to vote on its version of the housing bill, but the "rescue" is not imminent: the Senate and the House must still resolve the conflicts between their respective versions of the legislation, approve it, and obtain President Bush's approval.

Not surprisingly, the delays on the bill are making builders anxious. The numbers on foreclosures, housing starts, and new-home sales seem to be bleaker each month, and builders across the country are filing for bankruptcy. "Now is the time we need to focus on passing meaningful housing legislation," the NAHB's Howard stressed on Friday. "Industry and government must work together to help get home buyers back into the marketplace, stabilize house prices, stem the rising tide of foreclosures, and restore confidence in our housing finance system."

Alison Rice is senior editor, online, for BUILDER magazine.

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