Update: Fannie, Freddie fall again

Update: Fannie Mae (FNM) and Freddie Mac (FRE) came under renewed pressure Wednesday amid increasing worries about the mortgage lenders’ financial health. Shares of Fannie fell 6% and rival Freddie dropped 3% in midmorning action after The Wall Street Journal reported the companies could be forced to raise more capital. The selloff came even after Freddie’s financial chief rebutted the report in a meeting with analysts in New York. “There is no dilutive capital raise plan,” he said, Bloomberg reports.

Wednesday’s selloff helped erase some of the gains made in Tuesday’s marketwide rally. Even after yesterday’s double-digit percentage gains, shares of both Fannie and Freddie have fallen more than 40% in 2008, as house prices have fallen and projected credit losses have risen. Those trends have fueled worries about the strength of the companies’ balance sheets, even after Freddie raised $6 billion and Fannie almost $8 billion late last year.

Worries about the companies’ health have intensified with Washington’s efforts to expand Fannie and Freddie’s role in supporting the housing market by allowing the two to buy bigger mortgages. Those fears lifted briefly Tuesday, when the Fed set plans to let banks and brokers use mortgage-backed securities as loan collateral, but the Journal contends that the sharp decline in the companies’ shares over the past year shows the market already expects a new share issue.

Adding to worries that shareholders will be diluted, the Journal notes that the companies’ regulator, the Office of Federal Housing Enterprise Oversight, has stated its approval of new capital raising at Fannie and Freddie. While Ofheo recently deemed both companies well capitalized as of Dec. 31, director James Lockhart tells the Journal that “raising capital would put them in an even better position to support the mortgage market.”