Shares of Fannie Mae (FNMA) and Freddie Mac (FMCC) dropped nearly 25% on Tuesday following a report that Treasury Secretary Steven Mnuchin appears to have given up on the idea of obtaining a consent order that would have resulted in the privatization of the two giant government-sponsored entities (GSEs).
Mark Calabria, the head of the Federal Housing Finance Agency (FHFA) had been pressing Mnuchin to take the two GSEs private before the end of the Trump administration.
In an interview Tuesday with the Wall Street Journal, Mnuchin said he did not want to “do anything that jeopardizes taxpayers” and that he also wants to be sure the outgoing administration doesn’t “do anything that overnight would limit access to mortgage finance.”
Calabria last month pushed Mnuchin to privatize the two GSEs. Mnuchin reportedly wanted to create a path to privatization that would be difficult for a Biden administration to unravel. The way to achieve that is through a consent decree that frees Fannie and Freddie from the conservatorship imposed on the two GSEs following the housing crash.
Complicating matters further is a lawsuit on behalf of shareholders in the GSEs for which oral arguments were presented last week in the U.S. Supreme Court. The conservatorship agreement reached in 2012 ended dividend payouts to shareholders and directed the GSEs to pay the Treasury an amount equal to their net worth every quarter. This amount has grown to billions of dollars recently, and private investors who scooped up shares of Fannie and Freddie following the bailout want to be paid, not wiped out.
Shares of Fannie Mae had dropped about 23% on last look to trade at $2.11, in a 52-week range of $1.26 to $3.69. The consensus price target on the shares is $2.10.
Freddie Mac shares traded down more than 22%, at $2.09 in a 52-week range of $1.20 to $3.39. The consensus price target is $2.88.