Fannie Mae, a mortgage buyer and guarantor formally known as the Federal National Mortgage Association, had made the request to ease a credit crunch that has crippled the U.S. mortgage market.
Fannie Mae shares fell $2, or 3.01 percent, to $64.46 in mid-afternoon trading after losing more than 5 percent earlier in the day.
Freddie Mac shares fell 23 cents, or 0.37 percent, to $61.72 after losing about 2.5 percent earlier.
"We are not authorizing any significant changes at this time," the Office of Federal Housing Enterprise Oversight said Friday in response to Fannie Mae’s request to let it fund more multifamily loans as well as single-family mortgages.
Fannie Mae and Freddie Mac, formally known as Federal Home Loan Mortgage Corp., are the largest sources of money for U.S. home loans, owning or guaranteeing 40 percent of the $10.9 trillion U.S. residential mortgage market.
The regulator said it would "continue to reassess” its position on Fannie Mae’s request.