This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Fannie Mae and Freddie Mac: Obama Losers (Update 1)

Updated from 2:50 p.m. EDT with the DOJ lawsuit against Bank of America and market close information.

NEW YORK ( TheStreet) -- Fannie Mae (FNMA) and Freddie Mac (FMCC) were the big losers among major U.S. financial names on Tuesday, as President Obama prepared to deliver a speech calling for the end of both mortgage giants.

Fannie Mae's common shares were down 16% to close at $1.51, while Freddie Mac was down 15% to close at $1.40.

The broad indices ended with 1% declines after Dennis Lockhart, the president of the Federal Reserve Bank of Atlanta, said in a speech that the Federal Reserve could slow its bond-buying as soon as next month. The Fed has been making monthly purchases of $85 billion in long-term securities in an effort to hold-down long-term interest rates. Investors have anticipated this move by the Fed by pushing the market rate on 10-year U.S. Treasury bonds to 2.65% from 1.70% at the end of April.

The KBW Bank Index (I:BKX) was down 1% to close at 66.02, with all but two of the 24 index components showing afternoon declines. Shares of Bank of America (BAC - Get Report) were down over 1% to close at $14.64, after the Department of Justice in the final hour of trading announced a lawsuit accusing the bank of mortgage fraud.

Fannie and Freddie

The two companies -- known as the government-sponsored enterprises, or GSEs -- hold about $5.2 trillion in assets, mainly consisting of mortgage loans and mortgage-backed securities. They were taken under government conservatorship in September 2008. The government's preferred stake in Fannie and Freddie came to a combined $189.4 billion as of March 31. Following GSE dividends paid to the government in June, Fannie and Freddie paid a combined $131.6 billion in dividends to the Treasury.

Institutional and individual investors holding common shares and junior preferred shares of Fannie and Freddie have filed multiple lawsuits against the government, with the aim of recovering some value. Under their modified bailout agreements, Fannie and Freddie are required to pay all profits to the government, in excess of minimal capital buffers of $3 billion apiece. The GSEs are not allowed to redeem any government-held preferred shares.

Non-government shareholders of the GSEs have been taken on a wilde ride this year. Fannie's shares traded for 26 cents at the end of last year, and rose to an intraday high of $5.44 on May 29.

The companies' junior preferred shares have also been quite volatile, with investors hoping that their senior position to the common may make them a decent long-term investment because of their great discounts to par value.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG
FMCKJ $4.99 0.00%
FNMAS $4.83 0.00%
BAC $15.56 0.00%
FNMA $2.82 0.00%
FMCC $2.68 0.00%

Markets

DOW 17,826.30 -279.47 -1.54%
S&P 500 2,081.18 -23.81 -1.13%
NASDAQ 4,931.8150 -75.9760 -1.52%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs