Shares in Freddie Mac and Fannie Mae plunged in frantic trading yesterday in spite of attempts by US regulators to provide reassurance that the two government-sponsored mortgage financiers remained on a solid footing.

Shares in Freddie were down 22.03% to $8 and Fannie’s were off 13.78% to $13.30 at the close in New York, their lowest levels since 1991.

Other participants in the mortgage market, including Lehman Brothers, also suffered steep falls, although the overall stock market climbed.

Investors were unnerved by a warning from Bill Poole, former president of the Federal Reserve Bank of St Louis, that the chances that a bail-out of Fannie and Freddie might be needed were increasing.

Poole said Freddie Mac owed $5.2bn (£2.6bn) more than its assets were worth in the first quarter, making it insolvent under fair value accounting rules.

Financial Times, Daily Telegraph