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Fannie, Freddie shares tumble on Senate proposal for wind-down

Shares of Fannie Mae and Freddie Mac fell sharply on Wednesday, a day after leaders of the Senate Banking Committee announced an agreement on legislation to wind down the government-owned mortgage financiers. Shares of both fell more than 20 percent at their session lows, continuing the previous day's sharp decline.

Fannie shares dropped more than 30 percent Tuesday and Freddie Mac fell 26.8 percent, after both earlier hit their highest intraday levels since the third quarter of 2008. The two stocks were among the most actively traded US issues on Wednesday. Senate Banking Committee Chairman Tim Johnson, a Democrat, and Senator Mike Crapo, the panel's top Republican, outlined the plan after months of talks that included input from the Obama administration. They said they intended to introduce a bill soon, with an eye to having the panel vote on it within weeks.

Fannie and Freddie, which own or guarantee 60 percent of all US home loans, provide a steady source of mortgage funds by buying loans from lenders and packaging them into securities that they sell to investors with a guarantee. Their central role in the mortgage market led the government to bail them out to the tune of $187.5 billion in the midst of the 2007-2009 financial crisis, and lawmakers want to make sure taxpayers are never on the hook again.

Major investors have taken positions in both companies in the past several months. Last November, activist investor Bill Ackman's Pershing Square disclosed a half a billion dollar investment to acquire stakes of nearly 10 percent each in Freddie and Fannie. Bruce Berkowitz of Fairholme Capital Management announced shortly before Pershing Square's disclosure that he and other investors were willing to buy and recapitalize the government-controlled agencies.

Copyright Reuters, 2014


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