Industry NewsMortgage

Investors fear Fannie, Freddie bailout

Companies would continue to finance mortgages

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Investors continued to dump shares of Fannie Mae and Freddie Mac this week amid growing fears that the government will be forced to bail the companies out. While a bailout could wipe out shareholders and be costly to taxpayers, it would allow the mortgage finance companies to continue purchasing and guaranteeing loans.To avoid a bailout, Fannie and Freddie must refinance $223 billion in bonds that are coming due at the end of September, Bloomberg reported. Investors are still willing to finance both companies' debt by purchasing bonds -- which, unlike common stock, will not be worthless in the event of a government bailout. But Fannie and Freddie are paying higher returns on the bonds, increasing the cost of "rolling over" their debt.Freddie Mac said it priced the sale of $3 billion in five-year reference notes Monday at 4.172 percent, a 113 basis point spread above U.S. Treasurys. Bloomberg said the spread was the highest in 10 years, and compared with a 69 basis point sprea...