Hold the chicken, bring me the toast

As if meeting regulator's 30 percent additional capital requirements wasn't enough of a hassle, Fannie Mae was the subject of a Barron's cover story over the weekend suggesting the company may require a government bailout if housing markets get much worse. Note that Barron's is not alone in suggesting such a scenario. William Poole, president of the Federal Reserve Bank of St. Louis, recently made the same observation.

Fannie Mae CEO Daniel Mudd is visiting with investors in Asia and Europe this week, the Wall Street Journal reports, noting the trip is an annual event and that Mudd says he's not out knocking on doors for money (As we know, when Ginnie Mae needs somebody to go beg China to buy mortgage-backed securities, it can count on HUD Secretary Alphonso Jackson to do that for them).

While Fannie and Freddie's stocks are getting hammered big time today, it's safe to say they won't be allowed to go under. What's more important is they may be hamstrung in their ability to provide liquidity to secondary mortgage markets.

Federal regulators say Fannie Mae and Freddie Mac are adequately capitalized for the moment. But both companies have had to constrain their mortgage purchases and raise capital to offset mounting losses. That -- coupled with signs that investors are be losing their appetite for the mortgage-backed securities Fannie and Freddie guarantee -- could mean higher interest rates.

Not what lawmakers were hoping for when they gave Fannie and Freddie clearance to step into the market for jumbo light loans during the remainder of 2008.

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