Stocks Edge Off Lows on Fannie, Freddie News

Updated from 1:00 p.m. EST

Stocks on Wall Street rose off their lows Tuesday afternoon, following an announcement by the Federal Housing Finance Agency that it would work to refinance mortgages tied to government-sponsored entities Fannie Mae (FNM Quote) and Freddie Mac (FRE Quote). Negativity persisted, however, as U.S. automakers fumbled for answers to a stark business outlook and corporate earnings statements remained lackluster.

The Dow Jones Industrial Average, which had been down as much as 308 points earlier in the day, was lately losing 86 points at 8783. The S&P 500 fell 9 points to 909. The Nasdaq gave back 15 points to 1600.

At a press conference in Washington, James Lockhart -- director of the FHFA, which controls Fannie Mae and Freddie Mac -- said the two companies will work to refinance mortgages in an effort to keep borrowers in their homes. The new plan will effect on Dec. 15. Lockhart also said that the borrower's obligation to pay mortgages would remain in place.

The Federal Housing Authority's Brian Montgomery said the housing crisis has no single solution, but hundreds of thousands of borrowers may be eligible to refinance under the FHFA's program.

Several large banks also announced refinancing plans. Citigroup (C Quote) said it would alter terms for mortgages to avoid foreclosure proceedings on as much as $20 billion in at-risk home loans.

Bank of America (BAC Quote) and JPMorgan Chase (JPM Quote) had previously announced similar initiatives.

The decision by big banks to refinance mortgages is about a year overdue, said Michael Church, portfolio manager at Church Capital. Although it's much cheaper for banks when they avoid foreclosing on homes, securitization of mortgages has made it difficult to find out who the end-borrowers and the end-lenders are. "With things on a massive scale like this, I'm not surprised it has taken a year," he said.