Freddie Mac plan to boost coffers with a £5bn shares sale

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The company is expected to offer the new shares to existing investors. If it can find enough takers, the move could avoid the controversial taxpayer-funded government rescue promised to it and sister firm Fannie Mae.

The plan has not been finalised, the Wall Street Journal said, quoting insiders.

Freddie Mac and Fannie Mae shares slumped 45% last week on fears they may not have enough capital to cover mortgage losses. Their survival is crucial to US government attempts to prop up the housing market.

Together, they own or guarantee about $5200 billion of home mortgages, or nearly half the total outstanding.

However, Daniel Mudd, Fannie Mae's chief executive does not believe the lender will need federal help.

"I think it's very unlikely and i think everyone has described it ... as a backstop," Mudd said. "I don't think we'll need it."

But he is gloomy about the prospects for a quick turnaround of the housing crisis and believes home prices will keep falling.

"We think the rest of this year is going to be pretty tough," he said. "We expect home prices to decline into next year as well before we see a recovery."

Mudd said market conditions were "tough" and predicted that a return to normal conditions will be slow. "We expect it to bounce around the bottom for a while longer," he added.

While a stock sale by Freddie Mac would be difficult in the current climate, if successful it could at least delay the need for a federal rescue.

The rescue plan has bolstered shares with stock in both Freddie and Fannie rising 29% on Wednesday and Freddie shares by 22% yesterday, but both are still down nearly 80% for the year.

Both companies - which oil the wheels of the whole US mortgage market - are still facing big losses with the housing crisis nowhere near the bottom. They have reported a combined $11 billion of losses over the past three quarters, largely due increasing defaults on mortgages.