Shares of Fannie Mae and Freddie Mac, once the giants of the mortgage financing world—plunged yesterday, June 16, on news that the companies’ shares would no longer trade on the New York Stock Exchange. The shares will trade only on the over-the-counter bulletin board system.
The shares have been in danger of delisting since 2008 when federal regulators took over the companies and their stock prices collapsed. The Federal Housing Finance Agency, which now governs the two companies, instructed them to delist voluntarily after warnings from the New York Stock Exchange that Fannie Mae faced a mandatory delisting since its shares price had averaged less than $1 for the past 30 days.
The Federal Housing Finance Agency could have avoided the delisting by ordering the companies to perform a reverse split wherein, say, 10 shares priced at 56 cents (yesterday’s close for Fannie Mae shares) turn into 1 share worth $5.60. But it’s unlikely that a reserve split would have kept the price above $1 for long and the agency, which is facing the need to come up with a plan to fix these two key players in the mortgage market, has apparently decided that defending the share price of two companies that are currently not viable as public companies sent the wrong signal to the financial markets.
Fannie Mae and Freddie Mac own or guarantee about 50% of the $11 trillion mortgage market but only an unlimited line of credit from the Federal government has kept the companies alive. Taxpayers now own 80% of the two companies and it’s likely that any final plan will require billions more in taxpayer money (the agency estimates $177 billion) so any restructuring will almost certainly wipe out any remaining private shareholders.
The Obama administration has said that it doesn’t plan to tackle the job of restructuring Fannie Mae and Freddie Mac until 2011.
The biggest short-term effect?
Many of the big institutional investors such as Vanguard Group that, according to data from Bloomberg, still own shares of Fannie and Freddie, are prohibited from owning shares that aren’t listed on an exchange.
The delistings will take effect in early July.
bobisgreen,
You’ll get no argument from me! 🙂
Ed et al,
1st rule: Govt is inept in running themselves much less a business.
2nd rule: No surprise that Fannie and Freddie are being delisted. Don’t buy any!
3rd: I made a profit today…the govt didn’t! Mine is after they will eventually get their fingers on their cut!
marcus–What do you see replacing the GSE’s, if anything at all? Will we ever pull the life support plug?
suntzu1079,
I feel your pain. It drives me nuts that our government will be taxing me more and more in part so that people who don’t work or make less than I do can stay in far nicer homes than I live in. My wife and I have been in this dumpy townhome for years because we refused to pay beyond our means for a new home. Hopefully they won’t extend anymore government subsidies to the masses.
I worked at Freddie Mac and left in March ’08, shortly after they started compromising their underwriting requirements to stay competitive. That was only part of the reason, but it was a big factor. I had said that I’d leave and short the stock, then retire. Too bad I didn’t follow through. Still kicking myself on that one. 🙁
Call it an apology first, then followed it with an “anti-government” accusation. That’s great apology, but no thanks.
The majority of this country do NOT like government INTERVENTION of GM, AIG and banks and others. (There are many such polls out there. It’s particularly so when it comes government’s INTERVENTION of health care. 2/3 American polled want it “repealed”.) Therefore, this majority of American are “anti-government” INTERVENTION!
I don’t think it’s beneficial to pick a fight with the majority of this country, even if that’s what all you know.
YX–Get over it and quit crying like a little child. You’re constantly insulting people on here then cry to the blog owner when you think someone insulted you. Frankly, you’re being childish. I apologized, and even reworded my sarcastic remarks, but you still weren’t capable of understanding the meaning and insist on reading more than what was there. Are you off your meds? Because you sound quite incoherent and incapable of simple comprehension–common characteristics of the unstable.
I called you anti-government INTERVENTION. Big difference.
Quit acting delusional or go cry somewhere else, or act like a reasonable human being and try to understand what I actually said rather than continuously picking fights.
yx,
If I ever called you “anti-government”, you could take that as a compliment. 😉
zak,
I still hold DRR, which I like better than EUO.
Aside from DRR, my portfolio is already filled with short ETFs/ETNs: BOS, SRS, SDOW, and SPXU. I still have a strong cash position, so I am always on the lookout for new opportunities. But right now, I really don’t see any other good shorting opportunities, other than those related to what I am already holding.
Truthfully, I am actually spending a little more time looking for long opportunities right now. I haven’t found anything yet, but I’ll let you know.
Ed and all (except one):
I know you all don’t want to be “political”, neither do I. However, when you were call “anti-government” simply because you disagree with some of the government’s policy which has been proven very negative even damaging to this country, you have to defend yourself. Last time when I checked, it was Hugo Chavez’s Venezuela that put anyone who disagree with him into jail and it’s Josef Stalin that murdered anyone who dare to oppose him!
I don’t have to deliberately search. Just through my daily reading of so many major news sites, I can find many, many who would fit into the “anti-government” definition.
OMG Ed that is plain quotable.
ROFL!
suntzu1079,
Silly me! What was I thinking… 😉
yx,
At the risk of saying something political here, I have noticed a trend lately. Even the Media’s biggest liberal icons have started turning on our Democratic-controlled government lately (Case in point: Keith Olbermann bashing the President’s speech the other night).
When Obama talked about bringing an end to partisan bickering, I don’t think he meant that he’d get everyone to agree that he’s awful!
EdMcGon,
Are you considering any new position on shorts like euo, skf, qid or sds, etc.? Thanks.
Off topic.
Urgent Report.
CNBC is “anti-government”! (according to certain people on this blog)
http://www.cnbc.com/id/37747651
But Ed if we don’t buy them houses who will? You aren’t suggesting people work for a living, save money, hold off having kids, delay their government given right to instant gratification, and make a prudent financial decision do you?
My wife and I have been waiting a couple of years now for he government to let real estate prices drop to a natural level. After all they can’t keep them propped up forever right? RIGHT!??!!?
The sad part is they need to be shut down completely, not just delisted. Do the taxpayers need to be buying mortgages for people who shouldn’t be buying houses in the first place?