Fannie Mae’s (FNM) 8k has an interesting slide. It is a look at their questionable assets. The slide is not easy to read. It can be found in the 2009 Second Quarter Supplement, on page 5.
The report describes FNM’s exposure to problematic classes of mortgages on their book. That total comes to a whopping .9 Trillion. The total book of business is $2.7 Trillion, fully 32% of their book is troubled.
The report muddles with the actual holdings, as there are overlaps in the descriptions. The actual numbers they provide include:
- Negative Amortization Loans: $15b
- Interest Only: $196B
- Low Fico: $328B
- LTV>90%: $265B
- Alt-A: $269B
- Sub Prime: $8B
Those numbers add up to $1.2 trillion. This means that 50% of the loans in the book are troubled for two reasons. For example, $25 billion are loans that have high LTV and a FICO score less than 620. (AKA a “stinker”)
What might this mean? Some trends are emerging on this. Based on private sector experience with these types of troubled loans one could expect that 50% of these borrowers will go into default. On the defaulted loans the losses will be about 50% of the outstanding loan balances. In other words, losses of 25% on the troubled book are reasonable assumptions. That would imply a loss over time on these loans of $225b. And that does not include losses on Prime loans. And that is just Fannie.
The Administration has an estimate of $250b over four years for the full cost of cleaning up the Agencies. These numbers suggest it could be double that. No wonder Mr. Lockhart left. (click to enlarge)