Fannie Mae and Freddie Mac: Zombie Stocks and an Uncertain Future

AMA5-29-13The fortunes of quasi-governmental mortgage superlenders Fannie Mae and Freddie Mac have swooped from post-housing collapse bailout projects to a hot stock option – and back down again. As stock prices for both agencies reached gains of up to 150 percent, only to fall by 40 percent a day or so later, financial experts are eyeing the progress of theses “zombie stocks” in light of Fannie and Freddie’s uncertain future and its implications for the millions of homeowners holding mortgages they back.

According to a new analysis in The New York Times, the question isn’t what these stocks are trading for, it’s why they’re trading at all, given the troubled history of these agencies. Fannie and Freddie played a pivotal role in the great housing collapse of 2008, with massive losses in defaulted loans. But if the government had intervened with a total bailout the debt they carried –about $5 trillion – would have been added to the federal debt tally.

Instead, the Treasury Department opted to put both agencies into conservator ship – overseen by a regulator and repurposed as a kind of semi-public service institution that would help to prop up the housing market. But at the same time, Fannie Mae and Freddie Mac were also being run like private businesses, with lavishly compensated executives and a for-profit model.

The government’s long-term goal is to eliminate the two companies entirely and institute a completely new system of offering government backed mortgage loans. At the same time, though, it propped them up with almost $200 billion and asserted the right to acquire nearly 80 percent of their stock.

Industry watchers point out that these stocks really aren’t worth much – hence the term “zombie stocks.” Each company is in debt to the government. There is no shareholder Mariabingo on yksi netin suurimmista nettibingon yhteisoista ja tarjoaa mahtavan bingovalikoiman lisaksi kaikki perinteiset netticasinon tuotteet eli poytapelit, , videopokerin ja raaputusarvat. vote and the stocks have been delisted by the New York Stock Exchange. Plus, they’re being sold by entities that are expressly targeted for elimination. Yet the stocks continue to trade strongly, popular among small investors and speculators.

The fate of Fannie Mae and Freddie Mac stock might remain only on the back pages of the financial news – but the two mortgage giants combined hold over half the mortgage loans granted to residential homeowners and independent investors.  Many of these loans are serviced by other lenders, making it difficult for some mortgage holders to know whether their loan originated with either of these two agencies.

The fate of Fannie and Freddie’s stocks may not impact many outside the trading world, who ma find themselves empty handed once the government scrubs the two agencies. But thanks to government intervention Fannie and Freddie are inextricably tied to the housing market, and their future affects the outcomes for mortgage holders and mortgage seekers alike.

Fannie Mae and Freddie Mac are neither fish nor fowl – nominally government entities but in some ways highly privatized. For investors taking Jason Hartman’s advice to build wealth through mortgaged income properties, the fate of their zombie stocks may be well worth watching. (Top image: Fl;ickr/MikeLicht)

Resources:
Davidoff, Steven M. “In the Markets, At Least, Fannie and Freddie Still Astound.” Dealbook .New York Times, 29 May 2013
Fannie Mae Trading Detail. Marketwatch 29 May 2013

More from The American Monetary Association:

Mixed Messages on the Fed”s Securities Buyup

Fiscal hangover and Global Change with Keith Fitz-Gerald

The American Monetary Association Team

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