EXCLUSIVE: Soros: Fannie, Freddie crisis not the last

By Jennifer Ablan

NEW YORK (Reuters) - Billionaire investor George Soros said on Monday that the crisis over Fannie Mae and Freddie Mac will not be the last, and noted that the broader credit meltdown will impact an already slowing U.S. economy.

The Treasury Department agreed to raise Fannie and Freddie's credit lines above the existing $2.25 billion apiece and buy shares to strengthen their finances, if needed. The Federal Reserve offered to let the mortgage finance companies borrow at the rate it charges banks for direct loans.

The government's aggressive move on Sunday underscored problems plaguing the markets and the potential for them to send the U.S. economy into a severe recession.

"This incident (with Fannie and Freddie) is not the last one," Soros told Reuters in a phone interview, adding the year-long global financial market turmoil represented "the most serious financial crisis of our lifetime."

"Freddie Mac and Fannie Mae have a solvency crisis not a liquidity crisis," said Soros. "There's no problem in their borrowing. And in fact, insofar there is a problem, the Fed is there to provide the liquidity."

That said, both Fannie and Freddie are "extremely leveraged," he said. "The deterioration in the housing market, the foreclosures are going to cause losses which exceed their equity," said Soros, whose famous bet against the British pound earned his Quantum Fund $1 billion in 1992.

Fannie and Freddie shares rose as much as 30 percent in trading before the opening bell on Monday, but was unable to hold those gains throughout the session. At close, Fannie shares ended down 5.07 percent to settle at $9.73 while Freddie shares lost 8.26 percent to settle at $7.11.

U.S. stock indexes also posted losses. The Dow Jones industrial average .DJI> lost 0.41 percent to close at 11,055 points, while the Standard & Poor's 500 Index .SPX> shed 0.90 percent to end 1,228. The Nasdaq Composite Index .IXIC> slid 1.17 percent to 2,212.