Fannie Mae, Freddie Mac shares crater after Supreme Court ruling

Shareholders of Fannie Mae, Freddie Mac will be ‘vindicated’ in May: ACG Analytics managing partner

David Metzner on Fannie Mae, Freddie Mac

Shares of Fannie Mae and Freddie Mac plunged Wednesday after the U.S. Supreme Court ruled that the structure of the agency that oversees the mortgage giants violates the separation of powers principles in the Constitution.

The justices sent the case involving Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac and was created during the 2008 financial crisis, back to a lower court for additional proceedings.

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Fannie Mae shares fell by as much as 45% to $1.23 while Freddie Mac shares tumbled 46% to $1.21. At session lows, Fannie was down 49% this year while Freddie Mac was lower by 48%.  

Ticker Security Last Change Change %
FNMA FANNIE MAE 1.45 -0.79 -35.27%
FMCC FREDDIE MAC 1.46 -0.77 -34.53%

Shareholders of the two companies had argued that the FHFA's structure was unconstitutional and that the justices should set aside a 2012 agreement under which the companies have paid the government billions. That money is compensation for the taxpayer bailout that Fannie Mae and Freddie Mac received following the 2008 financial crisis.

The justices didn't go that far in their decision.

The "FHFA’s structure violates the separation of powers, and we remand for further proceedings to determine what remedy, if any, the shareholders are entitled to receive on their constitutional claim," Justice Samuel Alito wrote for a majority of the court.

The case is in many ways similar to one the justices decided last year involving the FHFA’s companion agency, the Consumer Financial Protection Bureau, which is the government’s consumer watchdog agency. It was created by Congress in response to the same financial crisis.

In the case involving the bureau, the court struck down restrictions Congress imposed that said the president could only fire the bureau's director for "inefficiency, neglect of duty, or malfeasance in office."

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Just as the bureau's leader was, the director of the FHFA is nominated by the president and confirmed by the Senate to a five-year term. In the FHFA's case, the director was only removable by the president "for cause."

The two consolidated cases the court ruled in are Collins v. Yellen, 19-422, and Yellen v. Collins, 19-563.

The Associated Press contributed to this report.

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