Fannie and Freddie experience more financial woes

The Bank of China announced as well that it has cut its holdings of mortgage-backed securities, also guaranteed by Fannie and Freddie, from the $6.6 billion it held on June 30 to the $5.2 billion it holds now.

Fannie Mae's shares have fallen $1.11, or 14%, closing at $6.84. Freddie Mac's shares have fallen 77 cents per share, or 14.6%, closing at $4.51. It has been speculated that the shares have fallen in value due to an increased fear in whether or not the companies will soon need government support, which would in turn leave their stockholders hanging.

BusineesWeek reported Aaron Smith, a senior economist with Moody's Economy.com as saying "I think these investors are just confused by recent events. If the government steps in, basically they are saying that `We're not going to let these guys fail, so they will make good on their debt.' Some of this confusion could be eliminated if the Treasury came out and said the (government sponsored enterprises') debt holders will not lose money."