Why Did Fannie Mae and Freddie Mac Plunge This Week?

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 (OTC: FNMA) and Freddie Mac (OTC: FMCC) 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.

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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.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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