The mortgage crisis continued to deteriorate as Fannie Mae and Freddie Mac shares tumbled more than 16 percent on fears that they will have to raise tens of billions of dollars in new capital to shore up their balance sheets.

The Wall Street Journal, New York Times, and Financial Times all go page one with the news, which was sparked by a Lehman Brothers report. The NYT says in its lede that Wall Street is saying “The worst is yet to come” with the housing bust and economic downturn.

The Lehman report said accounting changes could force the new capital-raising but also said Washington wouldn’t let those accounting changes happen. Still, the companies’ cost of borrowing has risen in recent weeks and investors are worried about the fallout from the problems of the monoline bond insurers. Fannie and Freddie are government-sponsored enterprises, created to support the nation’s housing market—a task that’s even more critical these days as others in the mortgage market have fallen away.

The NYT:

“Everything points to a lot more bad news to come,” said Paul Miller of the Friedman, Billings, Ramsey Group in Arlington, Va. “If Fannie and Freddie are vulnerable, it means no one is absolutely safe.”

And the Journal points out that if Fannie and Freddie, which would likely be bailed out by the government if their failure seemed imminent, can’t buy as many mortgages that would further cripple the nation’s housing market by raising borrowing costs for home purchasers.

IndyMac finds bed it made most uncomfortable

Mortgage lender IndyMac Bancorp said it will no longer issue most home loans and will slash its work force by more than half, the Journal says on C1. It had been trying to raise capital but was unable to do so.

The Pasadena, Calif., mortgage company and savings-bank operator is one of the largest lenders yet to be forced by the credit crunch to ditch the bulk of its business. IndyMac specialized during the housing boom in Alt-A loans, a category between prime and subprime that typically involves borrowers who don’t fully document their incomes or assets.

The Journal notes that the lender also has $18 billion in bank deposits, which were threatened recently by a mini bank run after a senator questioned their solvency. The Los Angeles Times briefly cites a Center for Responsible Lending report heavily criticizing IndyMac lending practices.

Brauchli’s baggage

The Washington Post hired the ex-Wall Street Journal managing editor Marcus Brauchli to be its first new top editor in seventeen years. It’s a remarkable comeback for Brauchli, who just a couple of months ago was forced out at the Journal after less than a year in the top job.

The NYT puts the news on page one, while the Journal stuffs it on B10 and doesn’t mention that he was forced out at the paper, instead saying he “stepped down” and leaving it at that.

It isn’t clear why Post publisher Katharine Weymouth went outside her paper to find a new editor, though the Times quotes former Post editor Ben Bradlee saying she had to “shake the place up.” It also reports Weymouth wants to merge the Post’s Web and print news operations, which the Post on A1 reports Brauchli did at the Journal. Here’s the justification from Weymouth in her paper:

Despite The Post’s culture of “promoting from within,” Weymouth said, “I thought that we could benefit from someone who would come in and look at what we do with fresh eyes.”

The Post also quotes a weird self-justification from Brauchli on why he stepped down rather than fight Murdoch under the protection granted him by the Journal’s editorial-integrity agreement (and follows with a quote from The Audit’s Dean Starkman criticizing the move).

“What was important,” Brauchli said, “was the Journal, not me—that the editorial integrity be preserved, not that my job be preserved… . Fighting for my job would have been mostly selfish and undermined the fight to maintain quality journalism.”

SEC finds conflicts at credit-raters

Bloomberg and the Financial Times on its page one say that the Securities and Exchange Commission has found “significant problems” with credit-ratings firms that didn’t deal with their conflicts of interest correctly in rating bonds, including those backed by subprime mortgages.

“The public will see that there have been significant problems,” SEC Chairman Christopher Cox said in a Bloomberg Television interview today. “There have been instances in which there were people both pitching the business, debating the fees and were involved in the analytical side.”

No info on what actions the SEC might take to remedy the situation.

Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at rc2538@columbia.edu.