Update: Fannie sinks to a 12-year low

Fannie Mae (FNM) plunged 12% to a 12-year low after a default notice at Carlyle Capital left the financial sector swooning. Guernsey, U.K.-based Carlyle Capital missed four margin calls yesterday totaling more than $37 million, Bloomberg reports. Carlyle Capital, run by private equity giant Carlyle Group, raised $300 million in July and used loans to buy about $22 billion of securities issued by Fannie Mae and Freddie Mac (FRE), the government-sponsored mortgage lenders, Bloomberg reports.

 The default at Carlyle Capital adds to worries that troubled hedge funds will be forced into fire sales of mortgage-backed securities, forcing prices down further. That would be bad for big holders of the securities such as Fannie, Freddie and other big financial institutions. The unrest comes as rates for short-term funding used by banks have hit their highest levels since debt markets seized up in December, The Wall Street Journal reports. Adding to the worries Thursday: a rumor, since batted down by Treasury, that the U.S. would step in to explicitly guarantee Fannie and Freddie’s debt.

Like Thornburg Mortgage (TMA), a jumbo mortgage lender that has seen its shares plunge more than 80% in a week amid missed margin calls and default notices, Carlyle Capital was done in by declines in the mortgage securities markets that led its lenders to demand more collateral. Echoing recent remarks by Thornburg chief Larry Goldstone, Carlyle Capital chief John Stomber said mortgage market values have come unmoored from the long-term value of the debt. “Unfortunately, this disconnect has created instability and variability in our repo financing arrangements,” he said, the Journal reports. “Management is actively working with the company’s repo counterparties to develop more stable financing terms.” In the meantime, expect more instability in the financial stocks.