Fannie and Freddie Cut Back

FBR lowers rating, the lenders think about tightening.


Analysts at Friedman, Billings, Ramsey are adamant that Fannie Mae and Freddie Mac won't be privatized. That's nominally good news for shareholders. The bad news? They'll each need to raise $10 billion to $15 billion in new capital to reassure investors.

FBR left its Underperform rating on the stocks, but lowered its price target on Fannie to $11 from $23. It cut Freddie to $7 from $17.

Until the capital situation gets resolved, analysts are wary of the shares, noting most investors are basing optimism on earnings potential in the 2010-2011 timeframe, but, "in our opinion, this is a risky investment policy, and there are too many unknowns with credit losses and possible future capital raises."

Meanwhile, Bloomberg is reporting that Fannie and Freddie are considering cutting back on buying up home mortgages and mortgage-related bonds.

This is exactly what credit markets, corporations, and everyday borrowers don't need.

The one thing this market needs to stabilize is a reliable expansion of credit. If the two biggest lenders who hold by far the largest and safest chunks of American prime mortgage debt aren't able to keep some credit flowing, there's not much reason to expect any sort of lending to improve soon.