Despite Lifelines, Concerns Linger on Mortgage Giants

Washington Post (07/15/08) P. D1; Birnbaum, Jeffrey H.; Irwin, Neil
Although the federal government's plan to prevent a failure of Fannie Mae or Freddie Mac due to rising mortgage defaults helped cushion the financial markets and enabled Freddie Mac to unload $3 billion in debt securities, it did not stop further declines in the firms' share prices as investors worry that government investment in the companies would hurt their value. There also are concerns that the plan itself could have negative consequences, expanding federal borrowing and boosting inflation in the event that the government invests a substantial amount of money in Fannie Mae and Freddie Mac or lends them a significant sum. Additionally, the value of their mortgage-backed securities could fall, mortgage rates could jump and home prices could decline further if the government-sponsored enterprises need to offset losses by unloading mortgage investments. Despite talk from Senate Banking Committee Chairman Christopher Dodd, D-Conn., indicating that the plan could be approved as separate legislation, it is expected to be included in the comprehensive housing bill currently under consideration.