Fannie, Freddie Continue to Falter (Update3)

The two stocks have lost more than half their value since the July 3 close. The assault comes even as federal officials, including Fannie's and Freddie's, have repeatedly sought to assure the market that the two companies are adequately capitalized.

OFHEO Director James Lockhart called the companies "adequately capitalized" in a statement issued after Thursday's close. Paulson also had reiterated the companies' health in testimony to the House Financial Services Committee earlier Thursday.

The stocks were battered Thursday, however, as ex-St. Louis Federal Reserve President William Poole said in a Bloomberg interview that the two major U.S. mortgage finance firms were "insolvent" and may need a U.S. government bailout.

Fannie's and Freddie's recent freefall comes as they were just beginning to get out from under the federal government's thumb, following sanctions imposed after accounting scandals at both companies. Congress allowed the lenders to take on more loans and larger loans, as jumbo lenders like Thornburg Mortgage(TMA Quote) began struggling. On top of that, OFEHO had cut its capital surplus requirement to 15% from 20%. The market in general had been whispering that the companies had more liabilities than it had assets.

Fannie Mae has $29 billion in mortgages and affects roughly $5 trillion in various debt liabilities; the U.S. gross domestic product is $13 trillion, according to the Bureau of Economic Analysis.

Just one year ago, Fannie Mae stock was trading at $70 and Freddie shares were trading at $67.