My finance view

Much has been said about the impact of the federal government’s rescue of Freddie Mac and Fannie Mae will have on taxpayers. But the faltering state of both mortgage-investment houses may already have hit many Americans in the pocketbook.

Fidelity Investments, the world’s largest mutual fund manager, was one of the biggest investors in Fannie and Freddie before the firms lost $18.9 billion in value.

Fidelity, along with Wellington Management Co., a Boston-based hedge fund company, and Dodge & Cox, a San Francisco-based investment firm, top the list of money fund managers that placed bets on Fannie and Freddie.

Investors who bought on speculation the government would rescue shareholders bet wrong after the stocks tumbled more than 60 percent over the last two months.

Treasury Secretary Henry Paulson said Sunday that the government will take over the mortgage companies. The rescue, however, mainly helps holders of preferred shares.

"This is a disaster for anyone who bought the stock," said Jack Ablin, who helps manage $65 billion as chief investment officer at Harris Private Bank in Chicago. "Based on what we know so far, it seems like the stock is worth virtually nothing."

Both Fannie’s and Freddie’s shares plunged in value on Monday.

Shares of Fannie Mae, formally known as the Federal National Mortgage Association, closed Friday at $7.04 but fell to $5.50 in after-hours trading when the Wall Street Journal said a government takeover was imminent. The company’s shares closed Monday at 73 cents.

Freddie Mac, formally known as Federal Home Loan Mortgage Corp., closed Friday at $5.10 and slipped to $4.04 after hours. On Monday, the shares closed at 88 cents.

"It was a very risky investment, and there was a 90 percent chance you could be wiped out," said Walter Hellwig, who helps oversee $30 billion at Morgan Asset Management in Birmingham, Ala.

Fidelity, Wellington, and Dodge & Cox added the most to their stakes in Fannie Mae between April and June, according to data from June 30 government filings compiled by Bloomberg. Wellington was the biggest buyer of Freddie Mac on a net basis among fund firms.

Fidelity’s funds added a net 10.3 million Fannie shares during the second quarter, bringing their stake to 56.5 million, or 5.2 percent of the outstanding stock.

Dodge & Cox reported owning 119.8 million shares as of July 31, based on a government filing required when a stake goes above 5 percent.

Wellington doubled its Freddie Mac stake to 21.5 million in the quarter, when the stock averaged $24.75 online payday loan. Since then, the price averaged $7.33.

Adam Banker, a spokesman for Boston-based Fidelity, and Wellington’s Lisa Finkel said their firms’ policies are not to comment on individual holdings. Dodge & Cox spokesman Steve Gorski didn’t return voice messages.

The amount of exposure that individual investors had through such funds is hard to calculate.

For most funds, holdings of an individual stock such as Fannie Mae or Freddie Mac will be minimal. But if an investor owns several funds that each own a stake in the same company, the potential exposure may be larger.

For instance, the vast majority of funds with Fannie and Freddie stakes have minimal holdings. Just 14 mutual funds had 5 percent or more of their assets in stocks of the mortgage finance giants at the end of June, according fund tracker Morningstar Inc.

But for investors in sector funds, the exposure is greater.

For example, Fidelity Select Home Finance, a fund with a specialized focus that’s clear from its name, has lost about 34 percent of its value this year. According to Morningstar, the $112 million fund had nearly 21 percent of its holdings in Fannie and Freddie combined at the end of June, the highest among any fund, just as the mortgage companies’ stocks began to plunge.

"Some people would be surprised at how much some funds have in financials and energy," said David Kathman, a Morningstar fund analyst. "They might want to rethink whether they want to own such a fund, or rethink how much they devote in their portfolio to it, and be aware of how it fits with the rest of their portfolio."

The Associated Press contributed to this report.

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