Please ensure Javascript is enabled for purposes of website accessibility

Why Did Fannie Mae and Freddie Mac Plunge This Week?

By Matthew Frankel, CFP® – Jun 24, 2021 at 2:49PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The two mortgage giants fell dramatically on some disappointing news for shareholders.

What happened

The stock market has been having a very strong week, with the S&P 500 sitting at an all-time high. But mortgage giants Fannie Mae (FNMA -3.09%) and Freddie Mac (FMCC -2.30%) are another story. As of 1 p.m. EDT on Thursday, Fannie and Freddie had declined by 38% and 41%, respectively, since Monday's open.

So what

The big catalyst for this week's move is Wednesday's Supreme Court decision that makes the Federal Housing Finance Agency (FHFA) far more accountable to the president and makes it much easier for the White House to replace the head of the FHFA, which is exactly what it just did with Trump-appointed director Mark Calabria. Prior to the ruling, the FHFA director could only be removed by the president with cause.

House with sold sign.

Image source: Getty Images.

Fannie Mae and Freddie Mac have been under government control since the financial crisis, and so are all of their profits. Investors have been patiently hoping that the two companies would be returned to private investors, and Calabria (who remained from the Trump administration) was certainly in favor of this plan. An end to the government control of the two agencies would mean that investors could finally share in the profits of the agencies.

Now what

Unlike the Trump administration, the current administration isn't nearly as interested in returning Fannie and Freddie to the private markets, and this news makes it extremely unlikely to happen anytime soon. The Biden administration has several housing priorities, but this isn't one of them. In short, these two stocks fell because there is virtually no chance of them being returned to shareholders at least for the duration of the Biden administration, and it wouldn't be a surprise if they fell even further.

Matthew Frankel, CFP has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Fannie Mae Stock Quote
Fannie Mae
$0.43 (-3.09%) $0.01
Freddie Mac Stock Quote
Freddie Mac
$0.42 (-2.30%) $0.01

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 11/29/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.