Fannie Mae (FNM) And Freddie Mac (FRE) May Need $20 Billion

By Douglas A. McIntyre Published Mar 28, 4:45AM EDT

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Part of the plan to fix the mortgage crisis is for Fannie Mae (FNM) and Freddie Mac (FRE) to buy more debt securities. To do that, they will need more capital, perhaps as much as $20 billion. According to Bloomberg “That’s the top end of the range,” James Lockhart,director of the Office of Federal Housing Enterprise Oversight said,

Even in this day and age of multi-billion bail-outs, that is a lot of money. The companies will have to sell stock or bonds to raise capital. The may push their share prices down again because of dilution. The federal government probably does not want foreign capital to fund the new requirements. So, who does that leave?

Fannie and Freddie could price the securities at such a low point that pension funds and hedge funds might come into a deal But, Freddie Mac’s market cap is already below $17 billion. Putting another, say $7 billion into the company could take the firm’s share price down to well below $15. It has a 52-week high of over $68.

The need of the government to solve the housing crisis is acute. Improving the balance sheets of the two companies so that they can do more to help homeowners is probably absolutely necessary to help fix the most critical crisis facing the economy.

But, should common shareholders be taken down to almost nothing in the process?

Douglas A. McIntyre

About the Author Douglas A. McIntyre →

Douglas A. McIntyre is the co-founder, chief executive officer and editor in chief of 24/7 Wall St. and 24/7 Tempo. He has held these jobs since 2006.

McIntyre has written thousands of articles for 24/7 Wall St. He is an expert on corporate finance, the automotive industry, media companies and international finance. He has edited articles on national demographics, sports, personal income and travel.

His work has been quoted or mentioned in The New York Times, The Wall Street Journal, Los Angeles Times, The Washington Post, NBC News, Time, The New Yorker, HuffPost USA Today, Business Insider, Yahoo, AOL, MarketWatch, The Atlantic, Bloomberg, New York Post, Chicago Tribune, Forbes, The Guardian and many other major publications. McIntyre has been a guest on CNBC, the BBC and television and radio stations across the country.

A magna cum laude graduate of Harvard College, McIntyre also was president of The Harvard Advocate. Founded in 1866, the Advocate is the oldest college publication in the United States.

TheStreet.com, Comps.com and Edgar Online are some of the public companies for which McIntyre served on the board of directors. He was a Vicinity Corporation board member when the company was sold to Microsoft in 2002. He served on the audit committees of some of these companies.

McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.