Feds Mull Possible Bailout for Freddie and Fannie

With the shares of mortgage titans Fannie Mae and Freddie Mac plummeting to their lowest points in more than 15 years, the Bush administration is weighing what to do in the event of a collapse, reports the Wall Street Journal. No rescue plan is imminent—both companies are expected to be able to raise needed capital—but as home values continue to decline and more homeowners default, Treasury officials are studying contingency plans.

Options include a credit line from the Federal Reserve, a capital infusion from the government or an explicit federal guarantee of their $1.5 trillion in debt, analysts tell the Journal, though any of them would be likely to set off a political firestorm. Freddie's shares dropped 24% yesterday and Fannie's 13%; the former is off 83% from a year ago, and the latter 76%. "They can't be allowed to fail," said a former Treasury Department official. "There is simply no way that the United States government can let it happen." (More Fannie Mae stories.)