NEW YORK (TheStreet) -- Shares of Fannie Mae (FNMA) and Freddie Mac (FMCC) continued to sink Wednesday, as the fate of common shareholders who were wiped out during the 2008 bailout of the housing giants remains uncertain.
On Tuesday, Tennessee Republican Senator Bob Corker and Virginia Democratic Senator Mark Warner introduced a plan to replace Fannie Mae and Freddie Mac with a new system where private capital absorbs most of the risk, while the government acts as a reinsurer.
The proposal contemplates a five-year window to wind down the government sponsored enterprises or GSEs and their regulator the Federal Housing Finance Agency.
During this time, there will be no changes to the Preferred Stock Purchase Agreement between the GSEs and the Treasury. Essentially, the agencies will continue to sweep the bulk of their profits to the Treasury in the form of dividends.Upon wind down, proceeds from the liquidation will be paid first to senior preferred shareholders -- Treasury--, then to junior preferred shareholders and, finally, common shareholders. FBR Capital analyst Edward Mills said in a note Wednesday that he believes the terms are structured in such a way that the "economic value" from the liquidation will not flow beyond the senior preferreds. In other words, common shareholders, who figure last in the list of who gets repaid, will likely get nothing, according to the analyst. If the legislation passes, it crushes any hopes shareholders may be harboring of the companies being restructured and returned to private hands. Shares of Fannie Mae were down more than 31% in Wednesday trading at $1.07, extending a 13% decline on Tuesday. Shares of Freddie Mac were shedding 28% to $1.07. Year-to-date, shares of Fannie Mae are still up 430%, while Freddie Mac is up 315%. Fannie's preferred Series S shares (FNMAS), with a face value of $25, were down 10.7% at $4.41 Wednesday afternoon. Fannie's preferred Series E shares (FNMFM), with a face value of $50, were plunging 16.5% to $8.76. Freddie Mac's preferred Series Z shares (FMCKJ), with a face value of $25, was down 8.8% to $4.65. The legislation, which was co-sponsored by six members of the Senate Banking Committee, marks the first step the government has taken towards reform of the housing giants since they were taken into conservatorship in 2008.
Select the service that is right for you!COMPARE ALL SERVICES
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV