For mortgage sector stocks, Fannie and Freddie ruling was positive

Change in direction could benefit mortgage originators

Shares of Rocket Cos and LoanDepot rose while shares Fannie Mae and Freddie Mac plunged after Supreme Court ruling (Unsplash)
Shares of Rocket Cos and LoanDepot rose while shares Fannie Mae and Freddie Mac plunged after Supreme Court ruling (Unsplash)

The stock prices of Fannie Mae and Freddie Mac plunged following a recent Supreme Court ruling, but some big players in the mortgage sector could end up benefiting from the decision, the Wall Street Journal reported.

In its ruling last week, the Supreme Court declined to dismantle the Federal Housing Finance Agency, which was created in the wake of the Great Recession to oversee Fannie Mae and Freddie Mac. The ruling also made it easier for President Joe Biden to remove the head of the agency. Biden promptly ousted the agency’s director, Mark Calabria, a Trump appointee who was on a mission to free the mortgage giants from government conservatorship.

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Shares of Fannie and Freddie nosedived by more than 40 percent after the ruling, but stocks in the broader mortgage sector — including mortgage originators such as Rocket Companies and LoanDepot — traded slightly higher, according to the Journal.

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The reaction may be because investors were not fans of the measures implemented under Calabria to make Fannie and Freddie attractive to private investors when they leave government conservatorship. Those measures led to higher fees for mortgage originations and tighter access to guarantees by the government-sponsored enterprises.

Under Biden, the GSEs’ regulator may try to roll back some of the measures or introduce other initiatives to make mortgages cheaper and more accessible.

Biden’s plans for the entities remain unclear, but any new measures will not spark a boom for mortgage stocks, given rising mortgage rates and the historic housing shortage, Jefferies analyst Ryan Carr told the outlet.

[WSJ] — Akiko Matsuda