Paulson Turns to Morgan Stanley for Fannie, Freddie Guidance

Ahead of Freddie Mac's revelation of $821 million in second quarter losses and in anticipation of Fannie Mae's estimated report of a 15% downturn on Friday, Secretary of Treasury, Henry Paulson tasks Morgan Stanley to assess the current and pending damage to cornerstones of the mortgage market.

In an unprecedented use of a major market maker and Wall Street firm, Paulson exercises new responsibilities to stabilize the troubled Government Sponsored Entities (GSE). Morgan Stanley will specifically advise the Treasury Department in a comprehensive risk assessment of Fannie and Freddie and in the event there needs to be expansion to the government's line of credit or purchase of stock.

Statements by Freddie Mac executives forecasting nationwide home prices to continue to drop 7% to 9% continues to rattle the mortgage market and signal additional losses in Fannie and Freddie mortgage portfolios.

The question now becomes--do Fannie and Freddie have enough capital and credit to weather future losses? Morgan Stanley, this has become your question...