Stock prices of Fannie Mae and Freddie Mac fall sharply.

Today the value of Fannie Mae and Freddie Mac have fallen about 16-18% in part because of new accounting rules that might force them to bring questionable off-balance sheet assets onto their books. This would leave them so undercapitalized that they would need to raise massive amounts of cash to avoid a huge government bailout.

Bloomberg reports (nonunique link):

Freddie Mac and Fannie Mae plunged in New York trading and their credit-default swaps rose as concerns grew the two largest U.S. mortgage-finance companies may need to raise more capital to overcome writedowns and satisfy new accounting rules.

Freddie Mac fell as much as 29 percent and Fannie Mae dropped as much as 26 percent, reaching their lowest price in 13 years, after Lehman Brothers Holdings Inc. analysts said in a report today that an accounting change may force them to raise a combined $75 billion in capital. Speculation that the companies may take further writedowns also weighed on the stock, said John Tierney, a credit strategist at Deutsche Bank AG in New York.

"There's probably an accumulation of events today that has focused investor selling," said Christopher Sullivan, who oversees $1.3 billion as chief investment officer at United Nations Federal Credit Union in New York.

Today's declines extend Fannie Mae's drop this year to 62 percent and Freddie Mac's to 66 percent. Washington-based Fannie Mae so far has raised $6 billion in capital to offset writedowns on mortgages it owns or guarantees. Freddie Mac, based in McLean, Virginia, raised $13.5 billion since December and said last week plans to add $5.5 billion probably won't be fulfilled until late next month. . . .

FAS 140

The new FAS 140 rule that seeks to stop companies keeping assets in off-balance sheet entities may force Fannie Mae and Freddie Mac to bring mortgages back onto their books, requiring them to put up capital, Lehman analysts led by Bruce Harting wrote in a note to clients today.

Fannie Mae would need to add $46 billion of capital and Freddie Mac would need about $29 billion, the Lehman analysts wrote.

The companies will probably get an exemption from the rule because it would be "very difficult" for them to raise that amount of capital, the analysts said.

Note that, even if Fannie and Freddie obtain an exemption from new accounting standards, that doesn't make them adequately capitalized. That just allows them to continue to pretend that they are.

In other news concerning the financial health of Fannie Mae and Freddie Mac, consider this change proposed by Barack Obama. In the Boston Globe's story about Barack Obama's strong support for funneling government money to real estate developers (who often abandon the properties they build with government money) is this paragraph urging the "siphoning" of profits from Fannie Mae and Freddie Mac:

Obama has continued to support increased subsidies as a presidential candidate, calling for the creation of an Affordable Housing Trust Fund, which could distribute an estimated $500 million a year to developers. The money would be siphoned from the profits of two mortgage companies created and supervised by the federal government, Fannie Mae and Freddie Mac.