The impact of the bailout of Fannie Mae and Freddie Mac on mortgage and housing industries

The substantial size and importance of Fannie Mae and Freddie Mac in the US housing market prompted the US government to place these two government-sponsored enterprises into federal conservatorship in an attempt to maintain their solvency and restore confidence in the mortgage and housing markets. People assess whether the financial market perceives the bailout benefits to extend beyond preventing the collapse of Fannie Mae and Freddie Mac to indirectly benefit firms in related industries. The authors' analyses show that REITS, housing brokerage firms, residential construction firms, commercial banks, and securities firms experienced some positive valuation effects from the authorization of the bailout with the passage of the Housing and Economic Recovery Act and/or the conservatorship announcement. Additionally, they find strong negative valuation effects from the conservatorship announcement for Fannie Mae and Freddie Mac. Since the terms of conservatorship included the elimination of their common stock and preferred stock dividends, their adverse reaction to this announcement is not altogether surprising.