Fannie, Freddie say they have plenty of capital

By Mark Felsenthal and Alister Bull

WASHINGTON (Reuters) - Fannie Mae and Freddie Mac said on Friday they had plenty of capital to withstand the housing crisis as government officials scrambled to restore confidence in the nation's top mortgage finance agencies.

Treasury Secretary Henry Paulson indicated that a bailout of Fannie and Freddie was unlikely despite concerns in financial markets that the agencies, which finance nearly half of U.S. homes, may have trouble raising enough money to keep buying mortgages.

A key senator said the U.S. Federal Reserve was considering allowing Fannie and Freddie to borrow directly from the central bank, spurring speculation that the Fed may take action as early as this weekend. Fannie and Freddie shares, after taking a beating, recovered some of their morning losses.

Sen. Christopher Dodd, the Connecticut Democrat who chairs the Senate Banking Committee, said he spoke with Fed Chairman Ben Bernanke and Paulson. They were looking at various options, Dodd said, including opening access to the discount window, at which the Fed acts as a lender of last resort for the U.S. banking system.

Investors were worried that the mortgage agencies might run short of capital, placing the fragile U.S. economy at even greater risk and deepening the housing slump. Dodd sought to reassure financial markets about the health of the two companies.

"These institutions are fundamentally sound and strong," Dodd said at a news conference. "There is no reason for the kind of (stock market) reaction we're getting."

Concern about Fannie and Freddie burgeoned after The New York Times said the administration was considering a plan to put the companies, thought to have implicit government backing, into a conservatorship if their problems worsened, citing people briefed about the plan.

In a conservatorship, regulators appoint a person or entity to run a troubled financial institution until it can be stabilized.