Why the Stocks of Fannie Mae and Freddie Mac, and Their Preferred Shares, All Plummeted Today
Shares of two government-sponsored entities got creamed today after the Supreme Court threw out part of a case that might have brought tens of billions of profits back to shareholders. The stock of the Federal National Mortgage Association (OTC: FNMA), or Fannie Mae, fell more than 32% today, while shares of the Federal Home Loan Mortgage Corporation (OTC: FMCC), or Freddie Mac, fell nearly 37%.
Preferred shares of Freddie and Fannie got hit even harder, for no obvious reason as far as I can tell. For instance, shares of Federal National Mortgage Association 7.625% noncumulative preferred shares fell 60% today.
Fannie Mae and Freddie Mac buy mortgage loans from banks and other lenders in order to provide liquidity to the mortgage market, so those lenders have the money to keep making loans. The two then package the mortgages they buy into securities and sell those mortgage-backed securities to investors. The big difference is that Fannie buys its mortgages from larger commercial banks, while Freddie buys them from smaller banks
Source Fool.com
