How to Trade Fannie Mae (FNM) and Freddie Mac (FRE) Stock During Conservatorship

Treasury's in charge now, boys.

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By David Sarokin
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Article Rating: (17 Ratings)

The US Department of Treasury had taken over operations of mortgage giants, Fannie Mae and Freddie Mac. What does this mean for shareholders of common stock in these companies? Have share values been wiped out? Here's how to make sense of the situation known as conservatorship.

Difficulty: Easy

Instructions

Step 1

Fannie Mae and Freddie Mac are two very large mortgage lender and investment companies that were established by Congress to help expand home ownership in the United States. These are GSE's, or government-sponsored enterprises.
Step 2

Both Fannie and Freddie have been hard hit by the mortgage crisis, and on September 7, 2008, they were essentially taken over by the federal government to prevent a complete meltdown (see Resources, below for more information).
Step 3

Fannie Mae trades on the stock market under the symbol FNM. Freddie Mac trades as FRE. There was considerable concern that a federal conservatorship would totally wipe out the value of the shares of Fannie and Freddie, leaving stockholders holding the bag.
Step 4

In fact, Fannie and Freddie shares will still trade normally, and the value of shares will continue to be set by ordinary market forces. However, stockholders will not have full voting rights under the conservatorship plan.

As the Treasury Department has noted:

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Q: What happens to the Company’s stock during the conservatorship?

A: During the conservatorship, the Company’s stock will continue to trade. However, by statute, the powers of the stockholders are suspended until the conservatorship is terminated. Stockholders will continue to retain all rights in the stock’s financial worth; as such worth is determined by the market.

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In other words, Fannie (FNM) and Freddie (FRE) will continue to trade normally on the stock market and their value has not been wiped out (despite many press reports to the contrary).

The NY Stock Exchange has announced that pre-market trading in Fannie and Freddie is halted for Monday, September 8, but that regular market trading will take place as usual, beginning at 9:30 am.

See Resources, directly below, for more information on the Fannie and Freddie conservatorship.

Comments

srjmsbnd said

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on 10/12/2008 "manchu89 said If FNM's stock is going to crash with certainty, then everybody would be shorting it. Is this correct?"

What is certain in this life?