The business stories that matter, by Fortune's Colin Barr
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November 24, 2007, 2:51 pm

Fears fester at Freddie Mac

The news keeps getting worse at Freddie Mac (FRE). The big government-sponsored mortgage investor saw its shares plunge 29% in a day last week after the company posted a $2 billion third-quarter loss and said it was considering halving its dividend in a bid to shore up its capital base. Then, on Friday, The Wall Street Journal reported that Freddie could face a big writedown of mortgage-related securities. The paper reports Freddie holds $105 billion worth of mortgage bonds issued by Wall Street firms. Freddie’s finance chief tells the Journal there’s no need for a writedown, given that the securities are almost all triple-A rated. That sounds depressingly similar to what Citi (C) and Merrill Lynch (MER) were saying just before they took multibillion-dollar writedowns on their subprime securities and collateralized debt obligation holdings last month. Wondering where all this could end up? Felix Salmon sketches out what might happen if further losses end up making Freddie Mac insolvent.

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Colin Barr covers business and finance for Fortune.com. Previously he was an editor at TheStreet.com and author of the weekly Five Dumbest Things on Wall Street column, and an editor at Dow Jones Newswires.
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