Where Fannie goes, Freddie usually follows.

Fannie Mae (nyse: FNM - news - people ) is selling common and preferred stock to shore up its capital after revealing a $2.2 billion first-quarter loss on Tuesday. Freddie Mac (nyse: FRE - news - people ), which is expected to report a loss of its own on Wednesday, also is likely to tap the market for funds.

The sometimes terrible twosome of U.S. housing finance are being used by the government to help stem the crisis in the American real estate market. But, as Fannie's first-quarter report showed, they are not immune from the effects, and are seeing their portfolios hit by mortgage market deterioration. (See "Fannie Take A Bullet")

Investors seemed wary on Friday, bidding Fannie's stock below the $27.50 price on its $2.3 billion of new commmon stock for part of the day, though the shares recovered to close at $27.72, up 9 cents, or 0.3%, on the day.

The Washington-based company, which began its existence as a government agency, is also offering $2.3 billion of convertible preferred stock that pays an 8.75% dividend. The $50 face value convertible can be swapped for 1.5408 Fannie shares, which would be profitable if the common trades about $32.45, for the next five years. After that time, the preferred will automatically convert to 1.5408 to 1.8182 shares, the latter amount being equal to the $27.50 of the current common offering.

Fannie did not specify the terms of the conversion, but they are likely to be linked to the trading price, so that if the stock falls from its current level, investors would get it at $27.50. The hope would be that the stock appreciates well beyond the $32.45 level, an 18.0% gain from $27.50

After three consecutive quarterly losses, Fannie needs the cash to offset losses from buckling subprime and Alt-A loans. This is especially true as Washington taps Fannie, and her government-backed mortgage brethren, Freddie Mac, to calm and bolster the troubled U.S. mortgage market.

Fannie and Freddie have seen their market share grow significantly in the wake of the subprime mortgage mess as banks have pulled in their credit lines significantly, virtually drying up the mortgage credit market. In mid-April, Standard & Poor's said that Fannie and Freddie pose a greater threat to the U.S. sovereign credit rating than all brokers and dealers combined. (See: "Bailout Now, Pay Later")

Reuters contributed to this article.