Officials reassure solvency of Fannie, Freddie as stocks plunge

ByABC News
July 10, 2008, 5:42 PM

WASHINGTON -- "Fannie Mae and Freddie Mac play an important role in our housing markets today and need to continue to play an important role in the future," Secretary Treasury Henry Paulson told the House Financial Services Committee at a hearing on financial regulation. "Their regulator has made clear that they are adequately capitalized."

Paulson's comments came on a day when the stock of Fannie and Freddie, government sponsored enterprises that buy mortgages and repackage them into bonds, continued to sink.

Freddie shares plunged $2.26, or 22.0%, to $8.00; Fannie's dropped $2.11, or 13.8%, to $13.20.

Thursday, former St. Louis Federal Reserve Bank President William Poole told Bloomberg News the mortgage giants were technically insolvent, given recent large financial losses.

Freddie Mac rebutted Poole in a statement: "As its regulator has noted, Freddie Mac has maintained the highest possible capital rating. The company continues to hold a surplus above its regulatory requirement that will enable it to continue to support the nation's housing markets."

Likewise, Fannie Mae managing director Brian Faith defended the adequacy of the company's capital, citing recent reports from the company's regulator, the Office of Federal Housing Enterprise Oversight. Faith said Fannie's core capital on March 31 totaled $42.7 billion, or $11.3 billion more than its minimum requirement.

"We are managing our business and maintaining a capital position that will allow us to fulfill our congressionally chartered mission now and in the future," he said

In addition, The Wall Street Journal, citing unnamed sources, said federal officials have been discussing options if Fannie and Freddie get into deeper trouble.

Federal Reserve Chairman Ben Bernanke, who testified with Paulson at the House hearing, also tried to ease fears during an appearance on Capitol Hill.