Fannie Mae, Freddie Mac Shares Fall on Wind-Down Measure

Bloomberg reports:

Common shares of Fannie Mae and Freddie Mac (FMCC) experienced their biggest intraday drop in 10 months after leaders of the Senate Banking Committee announced plans to eliminate the companies in a new bill.

Fannie Mae (FNMA) shares tumbled as much as 44 percent, paring the losses to 31 percent to trade at $4 as of 3 p.m. in New York, after Edwin Groshans, a managing director at Washington-based equity research firm Height Analytics LLC, described the proposal as holder-negative. Freddie Mac fell as much as 39 percent. Preferred shares also dropped, some by as much as 12 percent.

The bipartisan measure, drafted with input from President Barack Obama’s administration, would replace the U.S.-owned mortgage financiers with government bond insurance that would kick in only after private capital suffered losses of at least 10 percent, Senate Banking Committee Chairman Tim Johnson and Senator Mike Crapo said in a statement today. The bill would require most borrowers to make down payments of at least 5 percent.

20 to 1 leverage is still alright in the delusional land of big government! Even hedge funds aren't leveraged that much.