Investors and observers of Fannie Mae and Freddie Mac say they are bewildered by billionaire investor Warren Buffett's explanation for selling his shares in the companies - and that the fears he has voiced are unfounded.

Berkshire Hathaway Inc., of which Mr. Buffett is chairman, disclosed in its annual report in March that it sold nearly all of its Fannie and Freddie holdings last year. He gave no rationale for the sale in the report, causing widespread speculation about his motives, but last weekend at the annual Berkshire shareholders' meeting in Omaha, Mr. Buffet said he sold the shares because he believed Fannie and Freddie could be struck by unforeseeable "icebergs."

"We felt the risk profile had changed somewhat … we're quite sensitive to risk in banks, insurance companies, or government-sponsored entities," Mr. Buffet told shareholders, according to a Washington Post report. "We're never sure if there's an iceberg situation or not. We figured we'd never see it until it's too late."

But investors and analysts who follow Fannie and Freddie said they could not understand Mr. Buffett's concerns.

UBS Warburg's Gary Gordon said disaster-scale housing hazards are "very, very seeable" and that Mr. Buffett's alarm does not jibe with his research.

"These companies are under fairly heavy scrutiny, and there are a lot of people looking under the water," Mr. Gordon said. "It is hard to imagine that there are these large icebergs that we wouldn't know about, especially on the credit side."

Joy Palmer, Merrill Lynch's director of equity research for mortgage finance, said she thought it likely Mr. Buffett had other incentives for unloading the shares.

"He had a nice run in these stocks," Ms. Palmer said. "I thought he figured it was a good time to take profits. Look how much they are up from a year ago; you could see why he took a profit."

David Graifman, an analyst with Keefe, Bruyette & Woods Inc., said he took Mr. Buffett's words to signify worries about the companies' turns into riskier businesses - specifically, their efforts to court the subprime market.

"There is always a concern when you see a financial company moving down the credit spectrum," Mr. Graifman said. "Part of it also has to do with how much confidence you have in the company's ability to manage risk." Freddie and Fannie, however, "have shown themselves to be very adept at managing those risks," he said.

The chance of anything truly bad happening to Fannie and Freddie is "negligible," said Thomas O'Donnell, an analyst with Citigroup's Salomon Smith Barney. He said he foresees no political risk for the companies either, going so far as to declare Fannie and Freddie will "emerge victorious in the battle for territory in Washington" this year.

In addition, Mr. O'Donnell said, Fannie and Freddie are the "only entities that have been able to essentially eliminate rate risk in mortgages." Arguing that the main risk in the mortgage industry now is rates, not credit, the analyst said the companies have mastered managing this risk by utilizing callable debt, derivatives, and capital market operations. "They're the best mortgage-rate risk managers in the industry," he said. "They're second to none."

A Freddie Mac spokeswoman concurred. "Freddie Mac is well poised to continue growing," she said. "It is part of a healthy and growing mortgage market."

The possibility of unforeseen risk, she maintained, has been greatly reduced thanks to the six voluntary commitments Fannie and Freddie made with Rep. Richard Baker, chairman of the House capital markets subcommittee. These, she said, have substantially improved Freddie's soundness. "We're setting standards in risk management and transparency," she said. "That should give everyone the confidence that there are no 'icebergs' out there."

A Fannie Mae spokeswoman said that Berkshire had been a relatively small holder of Fannie Mae shares, and that Mr. Buffett had "sold at what was an opportune time for him. We think our stock is a very solid value."

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