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TheStreet Open House

Fannie and Freddie Keep Tumbling: Financial Losers (Update 1)

Updated from 2:27 p.m. ET with market close information and additional comments on Thursday from Michael Kao of Akanthos Capital Management.

NEW YORK ( TheStreet) Fannie Mae (FNMA) and Freddie Mac (FMCC) continued their epic slide on Thursday, following their change of course on Wednesday.

Shares of Fannie Mae dropped 40% to close at $1.73. The shares had declined 29% to $2.90 on Wednesday, following an increase of 140% the preceding week through Tuesday when the stock closed at $4.08.

Freddie Mac's shares were down 39% to close at $1.60. The shares had fallen 30% on Wednesday to close at $2.61, after seeing a one-week return of 150% through Tuesday's close at $3.75.

Fannie and Freddie together are known as the government-sponsored enterprises, or GSEs, and were taken under government conservatorship in September 2008. The GSEs together hold roughly $5.2 trillion in mortgage loans and mortgage-backed securities, and remain critical to the U.S housing market, as they purchase roughly 90% of newly originated mortgage loans in the United States


After the GSEs were placed under conservatorship their common shares plunged, as investors had no confidence the common shareholders could ever see a decent return, because of the size of the government bailout and the GSEs' uncertain future.

Common shares of both companies traded for just 26 cents at the end of 2012.

GSE shares were strong all last week, and Ralph Nader on Friday wrote in an explosive op-ed piece in the Wall Street Journal that , saying the two companies' common shareholders should fight against the federal government's "great Fannie and Freddie rip-off."

As part of its bailout agreements with Fannie and Freddie, the GSEs granted the government warrants to purchase just under 80% of the common shares of the two GSEs at a strike price of $0.00001 per share.

"The zombie common shareholders have no rights or remedies against Fannie and Freddie, both operationally active companies, or their regulator -- the Federal Housing Finance Agency," Nader wrote on Friday. "FHFA ordered the Fannie and Freddie boards and executives to suspend communications with shareholders and abolish the annual stockholders meeting."


President Obama and Congress are expected soon to negotiate over the future of the U.S. mortgage finance market, which will include a way forward for Fannie and Freddie, or possibly the long-term dissolution of the GSEs

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