Fannie Mae’s sale of $5 billion worth of preferred stock yesterday has resulted in the arrival of some unwanted guests to its decades-long stock-price party: hedge fund managers.

As a result, long-time shareholders in the country’s largest mortgage guarantor can expect to see Fannie Mae’s stock price whipsawed by the actions of these investment managers for the wealthy who regularly make multi-million-share bets based on small movements in stock prices.

Long a favorite of conservative investors such as pensions, Fannie Mae’s stock is no longer an option for the faint of heart.

Early yesterday morning, Lehman Brothers began marketing a two-part preferred stock deal for Fannie Mae, $2.5 billion of which was convertible into Fannie’s common stock. Fannie, the guarantor of over $900 billion in residential American mortgages, was forced to make the sale after its regulator said it broke accounting rules and is “significantly undercapitalized.”

The rules Fannie broke – and Fannie, led by its recently fired chairman and CEO, Franklin Raines, and its CFO, Tim Howard, has insisted it did nothing wrong – deal with accounting for hedges on interest rate derivatives. The losses it did not recognize because of this accounting practice have led it be undercapitalized, according to its primary regulator, the Office of Federal Housing Enterprise Oversight, known as Ofheo.

Just how undercapitalized Fannie Mae may be is a matter of intense debate on Wall Street and in the regulatory community. Fannie says it is $5 billion undercapitalized; the company’s critics have put the figure at closer to $12 billion.

A Fannie spokesman, Brian Faith, did not return a call.

Ofheo regulations requiring Fannie Mae to complete the sale by the end of the fourth quarter – tomorrow – put pressure on Fannie to offer potential buyers higher dividends than it ordinarily would have.

As a result, hedge funds were aggressive bidders for Fannie Mae’s convertible preferred stock and sold millions of shares of common stock short in advance of taking delivery of the convertible preferred stock.

Hedge-fund trading resulted in a sharp spike in the volume of Fannie shares traded yesterday – 17.41 million shares changed hands by the end of trading in New York versus the three month average daily volume of 5.74 million. Moreover, the price swings in the stock – from $67.89 to $70.38 – are indicative of the trading activity of convertible arbitrageurs, as they sell short or buy back blocks of stock for hedging purposes as the convertible preferred changed in price.

Hedge fund investors that bought the deal from Lehman – all of whom spoke on condition of anonymity – said the terms of the convertible portion of the deal were unusually generous to institutional investors: the 5 3/8%-5 7/8% dividend on the convertible preferred stock was “50 basis points, maybe 100” over what he would have traditionally expected to see from an double-A rated company like Fannie.

These hedge fund managers also said that the deal was attractive to the convertible community because of the belief that Ofheo will suspend the payment of Fannie’s $2.08 common stock dividend pending the completion of an extensive audit of the company. The elimination of the dividend is no small matter for convertible arbs, who given their short position in Fannie common stock, must pay the dividend to registered owners of the stock.

Helping Fannie out of its jam likely proved lucrative for Lehman. The firm’s fees were not immediately disclosed, but estimates from both clients and a Lehman trader ranged from 1%-2% of the $5 billion deal size, or $50 million-$100 million. A Lehman spokeswoman would only disclose that the firm acted as placement agent for the shares.

Analysts differed as to what the sale meant for Fannie Mae. A longtime Fannie bull, Sanford C. Bernstein’s Jonathan Gray, said the sale was “a huge plus for Fannie. They get long-term capital and don’t have to sell anything from the portfolio.” Mr. Gray, who said he owns Fannie stock personally, estimated that if Fannie had been forced to sell bonds out of its portfolio to raise $5 billion, it might have had to reduce its size by up to $120 billion.

One hedge fund manager, Mark Haefele of Boston-based Sonic Capital, said the outlook for Fannie continues to grow worse by the day. “The $5 billion they raised doesn’t take them near where they need to be – what are they going to have to do in the next quarter?” Mr. Haefele, whose fund has been short an unspecified amount of Fannie stock for more than a year, said the accounting woes point to the fact that Fannie’s business of buying and selling mortgage bonds is tremendously volatile.