The stock market is off to a rough start to the week after the Senate failed to agree on a much-needed fiscal stimulus. At the close today, the Dow Jones Industrial Average and S&P 500 index were both down by about 3%.
The two mortgage giants, Fannie Mae (OTC:FNMA) and Freddie Mac (OTC:FMCC), were hit far worse, with their stocks down by 14% and 12%, respectively. Both have now lost roughly 60% of their value so far in 2020.
With the COVID-19 pandemic causing a near-shutdown of the U.S. economy, Fannie and Freddie have both been directed to suspend foreclosures and evictions for 60 days.
In addition, homeowners who are affected by the coronavirus outbreak are eligible for a forbearance, which would allow them to suspend their mortgage payments for as long as 12 months with no late fees.
The problem is that unless Congress acts quickly to get relief funds into the hands of those who need it, and clarify how the government might help the mortgage industry during this tough time, we could see a massive wave of borrowers who are unable to make their payments. This could cause the cash flow of Fannie and Freddie to drop by billions of dollars per month, and with no end in sight. Fannie and Freddie guarantee $3.37 trillion and $2.27 trillion in mortgages, respectively, so we're talking some big numbers here.