HOWZAT

“In the financials no shareholders have been rewarded for being patient. In fact it’s quite the opposite as so far, aside from a few upward blips, it has been those who have abandoned ship who have benefited.”

Bush and Paulson’s comments slowed the pace of decline at both firms, but it took another unsubstantiated rumour to put a floor under Freddie’s and Fannie’s falling shares.

Reports on Friday suggested that Bernanke had told Freddie and Fannie they would be able to borrow from the discount window — the government’s emergency fund for banks. Neither the companies nor the Fed would comment on the rumours, but Freddie and Fannie made up much of the day’s losses. For now.

Bernanke is set to speak in Washington on Tuesday but may have to comment earlier if the wild ride starts again tomorrow.

WHILE Fannie and Freddie fought off rumours last week, another of America’s largest mortgage firms went to the wall. On Friday IndyMac, a lender that specialised in Alt-A loans — mortgages offered to borrowers who don’t fully document their incomes or assets — became the latest victim of the crisis.

The company, once one of America’s biggest lenders, was taken over by federal regulators after being wiped out by bad loans and bad faith.

The closure followed a frenzied week during which IndyMac’s executives had struggled to save it. They stopped making new loans and announced layoffs of more than half of the bank’s 7,200 workers. But regulators stepped in after customers, afraid that their savings might disappear, stampeded tellers and demanded their money in scenes reminiscent of the Northern Rock panic.

Fannie and Freddie operate to a higher standard than IndyMac. Most of the mortgages they own or guarantee are fixed-rate loans with lower rates of defaults.

Even so the companies reported combined losses of $11 billion for the nine months to March 31 from losses on the sale of foreclosed homes and provisions for future losses.

More losses are predicted and, with the American housing market in turmoil, shares in both Freddie and Fannie are trading at 17-year lows. With no end in sight the potential cost of failure is weighing heavily on the stock markets.

Mortgage delinquencies reached levels not seen since the late 1970s in the first three months of this year, according to the Mortgage Bankers Association.

Across the US, 6.35% of all mortgages were considered delinquent in the first quarter, up from 4.84% in the first three months of 2007. Poor quality, sub-prime loans have been responsible for much of this slide.

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