For tax-deferred accounts, I'd take a big breath and double down, buying more at the current low prices. Risks include the housing market getting even worse and equity holders getting hammered by a Treasury intervention. Not a trivial possibility.
Another suggestion I'd make, for those readers I haven't already horrified, would be to purchase the perpetual preferred stock issued by Fannie Mae. I'd avoid Freddie's, for I think its problems are more severe at the moment: It needs more capital, it kept expanding its balance sheet far too long, and it hasn't yet raised its guarantee fees. Normally I'd run away from perpetual preferred, which has no maturity, for when purchased at par it has all the downside risk of an equity and the upside only of a bond. In the current environment, however, I'd buy the FNMA 8.25% Series S Preferred, which is selling at a deep discount to its $25 par. It pays an 8.25% dividend (calculated on its par value) until Dec. 13, 2010, when the dividend resets to the three-month Libor rate plus 4.23%, with a floor of 7.75%. It is a noncumulative preferred, so if a dividend is missed the company doesn't have to make it up in the future. But it can't pay dividends on the common while the preferred dividend is suspended. At a price of $12 its current yield is 17.2%. It's callable at par every five years starting on Dec. 13, 2010--but the possibility of being forced to take $25 in cash for your $12 stock is not something to lose sleep over.
Why is it likely the dividend will be paid? Fannie is allowed to count perpetual preferred as regulatory capital. If the company were to eliminate the dividend, it would lose access to the market and destroy this source of funding. Also, the largest purchasers of this issue have traditionally been regional banks, and the last thing the Fed and the Treasury want to do is to put additional strain on the commercial banking system.
Not according to this article on reuters "The value of the company's common stock would be diluted but not wiped out, while the holdings of other securities, including company debt and preferred shares, would be protected by the government, the Washington Post said."