Refinancing Bubble Bursting ? Fannie Mae shares drop 13 percent in three days

WASHINGTON (AP) - Shares of Fannie Mae fell again on Friday, capping a three-day slide of more than 13 percent, as investor concerns widened after a government regulator accused top executives of the mortgage giant of mismanagement and serious accounting misdeeds.

While the impact so far has been limited to shareholders, the fallout could eventually reach millions of Americans if they have to pay higher rates for new mortgages for home purchases or refinancings, analysts say. That could be one of the consequences if Fannie Mae is forced to pay higher rates on its nearly $1 trillion in debt.



Fannie Mae and another government-sponsored mortgage financer, Freddie Mac, purchase billions of dollars of mortgages each year from banks and other mortgage lenders, then package them into bonds that are resold to investors. While they are not directly guaranteed by the government, they have special privileges - notably the ability to borrow directly from the U.S. Treasury, which makes their borrowing rates lower than competing firms.

The two companies, whose stock and debt is widely held by investors in the United States and throughout the world, have long contended that home buyers - especially low-income borrowers - have benefited from lower mortgage rates because of their ability to provide a standard way for the loans to be bundled and resold to investors.

But now that both of the firms have become embroiled in accounting scandals within 15 months of each other, their days of low-rate borrowing could be in danger. The Standard & Poor's rating agency said on Thursday that it is considering downgrading some of Fannie Mae's debt. Investors typically demand higher rates from companies with reduced credit ratings as compensation for the increased risk they assume.

Fannie Mae's shares fell $1.64, or 2.4 percent, to a 52-week low of $65.51 in trading Friday on the New York Stock Exchange. The shares closed roughly $10 higher on Tuesday before word of the regulatory findings."