Fannie Mae and Freddie Drop 39% Over Two Days

NEW YORK (TheStreet) -- Fannie Mae (FNMA) and Freddie Mac (FMCC) were once again the big losers among financial stocks on Wednesday.

Common shares of Fannie Mae were down more than 12% to close at $3.54. The shares have dropped 39% over the past two days, as investors have reacted to the announcement by Senate Banking Committee Chairman Tim Johnson (D., S.D.) and ranking committee member Sen. Mike Crapo (R., Idaho), that they had agreed on a new bipartisan proposal to wind-down the two government-sponsored enterprises, or GSEs.

Freddie Mac's common shares declined nearly 17% on Wednesday to close at $3.35, for a two-day drop of 39%.

GSE junior preferred shares also declined for a second-straight day. Fannie Mae's preferred Series S shares (FNMAS) were down over 8% to $10.90, while Freddie's preferred Series Z shares were down almost 8% to $11.30. Both issues have face values of $25, with investors hoping the junior preferreds will trade up to par if their dividends are restored.

Fannie and Freddie were taken under government conservatorship at the height of the U.S. housing market meltdown in September 2008. The GSEs' common and preferred stocks remained publicly traded, but values plunged because dividends to non-government shareholders were suspended, and because it appeared highly unlikely at the time at the GSEs would eventually return to being highly profitable.

There seems to be some confusion over the difference between having the GSEs pay dividends to the U.S. Treasury on government-held senior preferred shares, and possibly having the GSEs "pay the government back."

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