Will Fannie Shrink? Sell MBS?

Embattled mortgage giant Fannie Mae has 270 days to raise more than $5 billion in surplus capital. Now the question is: how will it get there?The company is not commenting on the supervisory agreement its board inked with the Office of Federal Housing Enterprise Oversight over the weekend, but investment bankers familiar with the company anticipate that Fannie Mae will have to shrink its portfolio by selling mortgage-backed securities. One banker predicted that the $870 billion-asset company will cease to buy mortgages for its portfolio and will act as a guarantor only, at least in the short term. Another Wall Street executive said: "They have four options available to them -- shrink, take profits on MBS, raise equity, or sell preferred stock." In trading last week, Fannie's stock skidded 13% to a new 52-week low. Early Monday afternoon Fannie's stock was up slightly, to $65.75.