Shares of Fannie Mae (FNMA) and Freddie Mac (FMCC), the two massive government-sponsored enterprises that help make the housing market run smoothly, both plunged nearly 35% Wednesday.
The huge drops come after the US Supreme Court ruled that a president can remove the head of the Federal Housing Finance Agency (FHFA), which oversees Fannie and Freddie.
Fannie and Freddie (more formally known as the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation) buy mortgages from lenders and either hold them on their portfolios or bundle them into securities.
The FHFA was created in 2008 to oversee Fannie and Freddie, which nearly collapsed during the Global Financial Crisis and needed to be bailed out by the federal government.
President Biden has clashed with FHFA director Mark Calabria, who was appointed by President Trump, over the future of Fannie and Freddie. Biden may now have the legal green light to oust him.
“The President must be able to remove not just officers who disobey his commands but also those he finds ‘negligent and inefficient,’" said Justice Samuel Alito, writing the majority opinion.
Shareholders of the two firms had sued the FHFA and Treasury Department, arguing that they were entitled to billions of dollars in quarterly dividend payments to investors that were eliminated in 2012 and paid instead to the government.
But the Supreme Court said in its ruling Wednesday that "there is no reason to regard any of the actions taken by the FHFA...as void."