Shares of troubled mortgage-finance companies Fannie Mae and Freddie Mac stabilized Thursday, reversing three days of steep losses. Shares of the two government-backed companies—which together hold or guarantee half the U.S. mortgage debt—had lost more than half their value this week on worries that a government bailout would reduce their stock's value to zero. Fannie Mae's stock was up nearly 8 percent and Freddie Mac shares were up 4 percent in late-morning trade. Many analysts believe Treasury Secretary Henry Paulson is not interested in protecting shareholders, only in Fannie and Freddie's ability to support the battered mortgage market. That means a government rescue might not occur until there is evidence the companies are unable to sell short-term debt—an indication they would no longer be able to operate normally. The two companies are the largest source of funding for home mortgages in the United States, but they have struggled with soaring losses from mortgage defaults. Fannie and Freddie lost a combined $3.1 billion between April and June, and investors fear the losses will continue to mount.
