NEW YORK — Fresh concerns about the troubled housing and mortgage markets were triggered Thursday by speculation that the government would be forced to bail out Fannie Mae and Freddie Mac, the twin pillars of the home loan industry.
Analysts worry that the mortgage giants won't be able to raise enough money from investors to cover rising losses from loan defaults. Those doubts have ramped up a sell-off by investors, sending shares of both companies to 17-year lows.
Both companies are vital to the housing market, and the government is considered likely to step in to avert any potential failure through loans or guarantees of their debt. But the dramatic plunges in their stocks -- Freddie Mac has fallen 50% in just the last week -- underscore the potential for the housing downturn to extend well into next year.
"It reflects the severity of the housing crisis and the dire state of the financial system," said Martin Fridson, head of money-management firm Fridson Investment Advisors in New York. "In contrast to the more hopeful sense of a couple months ago, the sense among investors now is that the housing crisis and difficulties in the financial system will drag on."
Fannie Mae and Freddie Mac were chartered by the government but are private companies with publicly traded stocks. They buy or guarantee home loans and mortgage securities, and together stand behind almost half of the nation's mortgage debt.
Their importance to the housing market has only increased in the last year as banks and others who backed mortgages have pulled back after suffering deep losses on subprime home loans.
Top officials in Washington tried to calm fears Thursday by downplaying the odds that Fannie and Freddie would have to raise money. Treasury Secretary Henry M. Paulson Jr. told the House Financial Services Committee that both companies were adequately capitalized.
"Their ability to raise capital even during times of stress is a testament to our financial institutions and to our financial system," Paulson said.
The companies' chief regulator, the Office of Federal Housing Enterprise Oversight, also issued a statement saying the government was monitoring the situation closely.
Nevertheless, any capital raising would dilute the ownership stakes of existing investors, and the stocks have fallen with remarkable alacrity in recent days.
