By David Cho
Washington Post Staff Writer
Thursday, June 17, 2010; A16
The federal regulator overseeing Fannie Mae and Freddie Mac ordered the mortgage finance giants on Wednesday to delist their shares from the New York Stock Exchange, dealing another blow to the battered companies.
Both firms' stock prices plunged by nearly 40 percent after the announcement. But several housing analysts said the deslisting was not shocking, given the companies' substantial troubles and uncertain future.
The government took over District-based Fannie Mae and McLean-based Freddie Mac in September 2008 and is developing a plan to restructure them that could reshape how mortgages are financed in the United States. Administration officials said Wednesday they are considering a wide range of options for the companies.
Since they were nationalized, Fannie and Freddie have reported billions of dollars in losses as waves of homeowners default on mortgages backed by the two companies.
The companies asked the government for a fresh round of aid in May after reporting combined first-quarter losses of more than $18 billion. Because Fannie Mae and Freddie Mac are propping up virtually the entire mortgage market, federal officials have been compelled to meet those requests.
The delisting of the mortgage firms' stock was triggered after Fannie's share price fell below $1 over 30 days, violating NYSE listing requirements. Corinne Russell, a spokeswoman for the company's regulator, the Federal Housing Finance Agency, said the NYSE informed the agency this week that the company would be dropped from exchange trading. Agency officials said it made no sense to delist one mortgage company and not the other. The two stocks will continue to trade on relatively obscure over-the-counter stock markets after the delisting from NYSE, which is expected to take place next month.
"FHFA's determination to direct each company to delist does not constitute any reflection on either enterprise's current performance or future direction, nor does delisting imply any other findings or determination on the part of FHFA as regulator or conservator," said Edward J. DeMarco, acting director of FHFA.
So far, the companies have drawn $145 billion from an unlimited line of credit with the Treasury Department, far exceeding the bailouts the agency extended to American International Group, Chrysler and General Motors. The rescue of Fannie and Freddie is expected to be the most expensive element of the federal government's intervention into the financial system.
The White House estimated in January that the cost of bailing out Fannie and Freddie would run at least $160 billion. The Congressional Budget Office put the figure higher, at $389 billion, but included other programs and expenses in its calculations, such as the Treasury's foreclosure-mitigation efforts.
Both figures assume a modest recovery in the housing market. If that does not happen, the cost of fixing the nation's mortgage system could be much higher -- some private-sector analysts have put the price tag of the worst-case scenario at between $500 billion and $1 trillion.
Treasury officials said some of that cost should be offset by profits from the $200 billion in mortgage securities held by the department and another $1.25 trillion in mortgage securities in the Federal Reserve's portfolio.
The officials said that they intend to emphasize the issue after the financial regulatory reform legislation pending in Congress becomes law. They spoke on condition of anonymity because their work on Fannie and Freddie has not been announced publicly.
The delay in restructuring the companies has generated criticism from Republicans, who argue that an overhaul of the financial system does not make sense without addressing Fannie and Freddie.
But Treasury officials did not want debate over the companies' future to bog down the regulatory overhaul, itself a complex process. They also judged the housing market as too fragile to weather a radical shift. For real reform to occur, the officials said, private investors will have to gain enough confidence in the housing market to replace Fannie and Freddie's role in financing mortgages.
Shares of Fannie Mae fell 39 percent to close at 56 cents. Freddie Mac slid 38 percent to close at 75 cents.