Freddie Mac and Fannie Mae stocks delisted from NYSE, losses grow
Freddie Mac and Fannie Mae, the key sources of funding that have kept lending to home buyers from completely drying up, were ordered by the government to cease trading their shares on the New York Stock Exchange to abide by NYSE delisting rules. Freddie Mac and Fannie Mae stocks, which have already lost nearly all their value in the housing crisis, fell further when the markets got the news. After the delisting,which was ordered for failing to meet NYSE requirements for maintaining price levels, the stocks of the two companies will be traded in the over-the-counter market.
NYSE delisting rules
Freddie Mac and Fannie Mae were delisted because NYSE delisting rules require that a company pull its stock if it can’t take action to keep shares from dropping below the $1 average price level for 30 trading days. The Associated Press reports that after the NYSE delisting announcement Fannie Mae shares dropped 42 cents, or 46 percent to 50 cents, while Freddie Mac slid 55 cents, or 45 percent, to 67 cents. In 2007, shares of both companies traded at more than $60. As the housing crisis deepened, the stocks lost almost all of their value, plummeting below $1 by September 2008. Fannie and Freddie were then taken over by the government.
Freddie Mac/Fannie Mae losses
Fannie and Freddie own or guarantee almost 31 million home loans worth about $5.5 trillion. That’s about half of all mortgages in the U.S. CNNMoney.com reports that since September 2008 the Treasury Department has poured $83.6 billion into Fannie Mae and $61.3 billion into Freddie Mac to cover losses on the mortgage-backed securities they own or guarantee. During the housing crisis, the money has kept lending to home buyers alive, kept home sales and new home construction from falling further than it has, and kept homes from losing more value than they have. But Freddie Mac/Fannie Mae losses totaled $93.6 billion in 2009 and another $18.2 billion in the first quarter this year. The Congressional Budget Office estimates that nearly $400 billion in tax dollars will eventually be needed to cover Freddie Mac/Fannie Mae losses, making it the most expensive of all the government bailouts.
Fannie Mae/Freddie Mac stock delisted July 8
Freddie Mac and Fannie Mae will delist from the New York Stock Exchange on or about July 8. The Wall Street Journal reports that the NYSE delisting meets the goals of government conservatorship to preserve and conserve assets. Pulling their stocks off the NYSE will save Fannie and Freddie $500,000 apiece in annual listing fees. Both companies paid the maximum amount because of the large number of shares outstanding.
Fanny Mae/Freddie Mac OTC stock
After July 8 Fannie and Freddie stock will be traded in the over-the-counter market. Brokers and dealers will negotiate directly with one another for Fannie and Freddie stock over computer networks and by phone. OTC stocks are usually very risky because they are the stocks that are not considered large enough or stable enough to trade on the New York Stock Exchange. Research about these stocks is also harder to find. With the delisting, David Lutz, managing director of equity trading at Stifel Nicolaus & Co. in Baltimore, told Business Week that “We lose some transparency into what is essentially a large black hole that is eating up a large part of our bailout funds.”