The US Treasury is seriously considering the option of recapitalizing Fannie Mae and Freddie Mac in the months to come. News of the expected move appeared in the August 18 edition of Baron and comes in the wake of the government’s attempts to bail out the two top home funding companies in the US in order to save the housing market.

The report which appeared in the weekly financial newspaper Baron, claims that the Treasury is ready to infuse tax payers’ money into the companies. The bail-out would most likely take the form of preferred stock with high seniority, convertibility rights and dividend preference.

However this form of recapitalization backed by the Treasury would deal a severe blow to the existing holders of the common stocks of Fannie Mae and Freddie Mac. The preferred holders would suffer huge losses as would those holders of the two companies’ subordinated debt reaching up to $19 billion.

Moreover the recapitalization by the Treasury would place a huge burden on the country’s taxpayers and even double the US debt, according to the Baron’s report. If current evaluations are to be believed, Fannie Mae and Freddie Mac each would have a negative value of $50 billion after taking into account deferred tax assets and generous asset marks.