Treasury Supports GSEs; Administration Ruling Out Nationalization?

Treasury Secretary Henry Paulson late Friday morning issued a general statement of support for Fannie Mae and Freddie Mac while a source close to the administration ruled out nationalizing the two GSEs. The statement was issued about 11 a.m., after Freddie and Fannie's share value had plunged by 41% and 38%, respectively. A source familiar with the Administration's thinking said the Treasury will not nationalize the two. Late Thursday night sources told National Mortgage News that the Federal Reserve was weighing a plan to open its lending window to Fannie and Freddie, alleviating perceived liquidity pressures facing the government-sponsored enterprises. The two GSEs have a $2.5 billion line of credit with the Treasury Department but analysts concede that such a small borrowing authority would not take them far given the liquidity crunch facing most credit industries. Market sources note that short sellers have been targeting their stocks, betting on an eventual collapse. One investment banker noted that commercial paper lenders "are getting very nervous," but added that, "the government will not let them fail. Many things are under consideration, including the Federal Reserve window."