Bailout Concerns Slam Freddie, Fannie Shares

Investors dumped shares of Fannie Mae and Freddie Mac this morning on the heels of the Barron's report on the increasing likelihood of a U.S. Treasury bailout that would result in a near complete wipe out for shareholders.

Shares of the two firms are down more than 16%.

Several U.S. insurance companies have "substantial" exposure to securities issued by Fannie Mae and Freddie Mac but should avoid big write-downs because of the federal government's backing of much of those securities, A.M. Best Co said on Monday.

The U.S. insurance industry invested $371 billion in securities issued by the mortgage financiers at year end, but $366.4 billion of the sum was in fixed income, A.M. Best said.

"Much of the industry's exposure represents fixed-income securities, which should benefit from the added financial backing of the federal government," A.M. Best said.

The Treasury is expected to guaranty most, if not all, of Freddie and Fannie's fixed income securities.