Despite the boost in their share prices yesterday, the stocks of both Fannie Mae and Freddie Mac have been in what analysts are terming a month long slump, brought about by Fannie’s having to chop its dividend in half to meet regulatory capital requirements. Before yesterday’s rally, Fannie’s stock was down 10.1% since chopping its dividend on January 18 and Freddie, the smaller of the two mortgage guarantors, was down 8.23%. Yesterday Fannies stock rebounded, closing up $1.15 to $63.57 and Freddie’s stock closed up $2.57 to $66.93.

The two companies, known formally as government-sponsored enterprises for the government’s role in chartering them, have had a rough two years. In 2003, Freddie’s management was fired after the discovery of a scheme to hide $5 billion in earnings using a variety of accounting tricks. Last year, its regulator accused Fannie of engaging in a series of accounting maneuvers that inflated earnings by as much as $11 billion. Fannie’s high-profile chairman and CEO, as well as its CFO, were forced to resign.

One veteran GSE analyst and critic, Ely & Company’s Bert Ely, said that despite yesterday’s rally, it was apparent to him that many holders of the stock were beginning to be skeptical of the power of what he termed “the GSE label.” By “label,” Mr. Ely, who has consulted for both companies in the past, meant the perception by investors and analysts that both companies so dominated the mortgage market that they were able to increase fees – and thus generate earnings – at will. In turn, their stock prices generally stayed high as buyers flocked to the perceived stability of their shares.

Spokesmen for both companies declined to comment.

Mr. Ely said that should the stock slump continue, one of the things that is most likely to occur is that Fannie and Freddie will likely assent to a stricter regulatory regime. Under such new standards, for example, the company might have its regulator reassigned to the Department of the Treasury, or have to set aside greater amounts of capital for regulatory purposes.

A long-time investor in both companies, Dreman Value Management LLC’s David Dreman, said despite Freddie and Fannie’s travails, the stocks are very cheap.”They are selling at a 40% discount to the price-to-earnings ratio of the S &P 500,with a growth rate that is higher than most companies in the index.” He said he has been adding shares of both companies as new money comes in to his funds. Currently, he has about 10% of his $11 billion portfolio invested in GSE stock.

Still, Mr. Dreman has little illusion about the situation Fannie and Freddie find themselves in.