Mortgage stocks cut losses in frantic NYSE trading

The losses in shares of two huge U.S. mortgage companiesand guarantors,Fannie Mae and Freddie Mac,eased in New York trading on Friday afternoonafter a key U.S. politician saidthe companies were sound.

Stock in thetwo companies,which have a public policy role in the U.S.housing market but are owned by investors, crashed Friday after the New York Timesreported the U.S. government might have to take over one or both ofthem. The paper cited unnamed sources.

Together, they back or hold nearly half of the total $12 trillion US in mortgages. Concern about rising defaults and foreclosures has cut the stock price of the two companies, but the fall turned into a rout early Friday, even though the Times said no government action is imminent.

But the losses shrank after Senate banking committee chairman Christopher Dodd said the companies have access to the capital they need.He said he talked with Federal Reserve chairman Ben Bernanke and U.S. Treasury Secretary Henry Paulson, and that thetwo are "looking at various options" forsupporting the companiesif they need it.

Moreover, some analysts said there was no fundamental reason for the price drops.

Freddie Mac stockclosed downjust 25 cents to $7.75 in New York Stock Exchange trading, afterfalling aslow as $6.68.

Fannie Mae was off $2.95, to $10.25.It touched $6.68 in early trading.

The volume was huge, with a combined total of 800 million shares changing hands. Thetwo together usually trade about 40 million shares a day. The 800 million is equal to half the total volume of all stocks traded in New York on a typical day.

Freddie Mac was as high as $14.50 on July 3, the last tradingday last week, and peaked at $67.20 in the past year. Fannie Mae was at $18.78 on July 3, and the52-week high is $70.57.

Karen Shaw Petrou, from the Washington consultants Federal Financial Analytics, said observers were expecting the government to act.

A 1992 law allows the government to take overoperations that get into serious trouble by placingthem in conservatorship. Thestock would be almost worthless if that happened, the Times said.

The two companiesbuy mortgages and repackagethem as investments, a key role in the financial underpinnings of U.S. home ownership.

"Without them, our economy would collapse," Piper Jaffray analyst Robert Napoli said in a note to clients.

Fannie Mae's website said it has a public mission"to expand affordable housing and bring global capital to local communities in order to serve the U.S. housing market."

It existsto ensure mortgage lenders have enough funds to lend to homebuyers at low rates.

Freddie Mac finances housing for low- and moderate-income families by ensuring there's a stable supply of money for lenders to make the loans new homebuyers need.

The names are based on the acronyms for the companies: Federal Home Loan Mortgage Corporation (Freddie Mac) and Federal National Mortgage Association (Fannie Mae).

The concern about mortgage companies spilled over into trading of investmentbank Lehman Brothers Holdings Inc. It has been battered by fears it might fail, and the stock lost another$2.87 Friday, falling to $14.43.