Jul 11 10:43 AM US/Eastern -By JEANNINE AVERSA -AP Economics Writer
WASHINGTON (AP) - Treasury Secretary Henry Paulson, seeking to calm nervous investors about the financial state of Fannie Mae and Freddie Mac said Friday the government's primary policy focus currently is to leave the congressionally-created mortgage giants intact.
"Today our primary focus is supporting Fannie Mae and Freddie Mac in their current form as they carry out their important mission," Paulson said.
The financial health of the two companies is of critical concern to Washington policymakers because of the crucial role they play in the housing market.
The pair hold or guarantee around $5 trillion worth of mortgages. That's roughly half of the $9.5 trillion debt of the United States. The fear is that a failure of one or both would wreak havoc on the nation's financial system and the broader economy as well.
Paulson's comments came amid reports that the government was considering a plan to take over one or both of the companies and place them in a conservatorship.
The Treasury chief said his department is "maintaining a dialogue with regulators and with the companies." The companies' main regulator will continue to work with the Fannie Mae and Freddie Mac "as they take the steps necessary to allow them to continue to perform their important mission," Paulson said.
Shares of the companies' stocks have plunged in recent days, with Freddie's down sharply on Friday as fear intensified. Investors are increasingly worried the companies will suffer more losses as housing prices keep falling and foreclosures keep rising.
And, stock investors are worried the companies will have to raise a lot more money to cover those losses. By law the companies are required to hold only a fraction of what is mandated for commercial banks as a financial cushion against risk.