McCain: Mortgage giants can't be allowed to fail

[July 11, 2008]  WASHINGTON (AP) -- Republican presidential candidate John McCain said Thursday the government cannot let mortgage giants Fannie Mae and Freddie Mac go under.

The two government-sponsored companies have been operating under a cloud of uncertainty in recent weeks, and their shares have plunged to levels not seen since the early 1990s.

McCain said while campaigning in Michigan that Fannie and Freddie "have been responsible for millions of Americans to be able to own their own homes, and they will not fail, we will not allow them to fail."

Concerns surfaced this week that an accounting rule change would force Fannie and Freddie to raise as much as $75 billion in new capital. While those concerns subsided amid reassurances from the companies' chief government regulator, fears remain that housing troubles will continue to worsen. Analysts say that could possibly force the mortgage giants to raise capital by issuing additional stock, which would dilute their value for current shareholders.

Former St. Louis Federal Reserve President William Poole told Bloomberg News that chances are increasing the government may need to bail out the two companies.

Jason Furman, economic adviser to Democratic presidential candidate Barack Obama, said the challenges facing the mortgage giants are part of the broader weakness in the economy.

"Obama believes we must maintain the flow of capital for mortgages and protect homeowners from foreclosure," Furman said.

[Associated Press; By LIZ SIDOTI]

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