Fannie, Freddie Retreat After Historic Gains

Updated from 1:44 p.m. with market close information, Bruce Berkowitz's big bet on Fannie and Freddie and bank stock commentary.

NEW YORK ( TheStreet) -- Fannie Mae ( FNMA) and Freddie Mac ( FMCC) retreated Wednesday following a surging seven-session ride in which both stocks more than doubled in value.

Shares of Fannie Mae were down 29% to close at $2.90. The shares had risen 140% over the preceding week to close at $4.08 on Tuesday.

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

"The furor that took the common stock to a $40 billion combined market cap seemed overdone when the preferreds have continued to languish at an $8 billion capitalization," wrote Michael Kao, head of Los Angeles-based hedge fund Akanthos Capital Management, in an email.

The two mortgage lenders, known as the government-sponsored enterprises, or GSEs, and were taken under government conservatorship in September 2008 following the implosion of the industry.

Fannie and Freddie benefited from better-than-expected housing data from the S&P/Case-Shiller 20-city home price index which showed a month-over-month increase of 1.4% and a 10.9% gain from the same period a year ago. The national 20-city and 10-city indices all posted the largest year-over-year gains since 2006, according to S&P Dow Jones Indices. Economists polled by Thomson Reuters on average expected the 20-city index to show a year-over-year increase of 10.2%.

The gains by both GSEs was sidetracked Friday after Ralph Nader, the longtime consumer activist, wrote in a column for the Wall Street Journal that 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."

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