Ticking Prime Bomb: Fannie Mae Monthly Summary, September 2009

Decades from now the summer of 2008 will likely be remembered to mark the turning point where legislative blundering took an otherwise serious financial crisis and molested it into an epic financial collapse.

By fully assuming the liabilities of Fannie Mae (FNM) and Freddie Mac (FRE), the two colossal and corrupt (and conduit of corruptness funneling junk Countrywide Financial loans onto the implied balance sheet of the federal government) government sponsored enterprises, the federal government, led by Treasury Secretary Paulson and Federal Reserve Chairman Ben Bernanke, has thrust taxpayers into an abyss of insolvency with one mighty shove.

Given the sheer size of these government sponsored companies, with loan guarantee obligations recently estimated by Federal Reserve Bank of St. Louis President William Poole of totaling $4.47 Trillion (That’s trillion with a capital T… for perspective all U.S. government debt held by the public totals roughly $4.87 Trillion) this legislative reversal making certain the “implied” government guarantee is reckless to say the least.

The following chart (click for larger ultra-dynamic and surfable chart) shows what Fannie Mae terms the count of “Seriously Delinquent” loans as a percentage of all loans on their books.

It’s important to understand that Fannie Mae does not segregate foreclosures from delinquent loans when reporting these numbers.

click to enlarge
Finally, the following chart (click for larger ultra-dynamic and surfable chart) shows the relative movements of Fannie Mae’s credit and non-credit enhanced (insured and non-insured) “Seriously Delinquent” loans.

Comments

[BRUCE E. W.:]

online.wsj.com/article...
Goldman wants Fannie's credits.

www.mcclatchydc.com/22...
Goldman takes on new role: taking away people's homes

www.mcclatchydc.com/go.../ web video

www.mcclatchydc.com/22...
How Goldman secretly bet on the U.S. housing crash

by Greg Gordon | McClatchy Newspapers 11/1/09
"The Securities and Exchange Commission should be very interested in any financial company that secretly decides a financial product is a loser and then goes out and actively markets that product or very similar products to unsuspecting customers without disclosing its true opinion," said Laurence Kotlikoff, a Boston University economics professor who's proposed a massive overhaul of the nation's banks. "This is fraud and should be prosecuted."

As early as 1990 the American Enterprise Inst. was calling for the liquidation of FNM & FRE (GSEs: Government Supported Enterprise) as part of the deregulatory and privitizing process they were pushing. At that time the idea was initiated that a "downpayment" support would replace the extended mortgage servicing and after the initial downpayment the mortgages would be shifted into a National Mortgage Market. In Sept 2008 the SHADOW FINANCE REGULATORY COMMITTEE which is essentially a working team created by the AEI made a direct recomendation with Paulson that they should take "the opportunity" of the crisis to initiate that liquidation process. Now we stand today discussing how these GSEs are threatening the American economy which falls directly into the path of a schema to invade and capture that market. I just feel cynical enough to wonder what incentives exist to short FNM and FRE and bring down the house. And why is it that the big money keeps so close behind these reports? Trends and statistics and roller coaster graphics? It must be the end of the world!

Nov 02 03:04 PM

[Moochacha:]

It does look scary the way this is presented but you might consider the considerable undertaking to modify mortgages and help homeowners that are facing foreclosure which is now mainly being done by FRE and FNM. The banks and other mortgage holders are holding tight to their toxic assets however.

Nov 06 03:05 PM

[jambo:]

"The banks and other mortgage holders are holding tight to their toxic assets however."

Uh, those would be OUR toxic assets, as determined in the 'TBTF' doctrine.
Why not hold- or not- onto something not only trivialized by the so-called stress tests (hmmmfff) but defacto guaranteed by our brilliant economic strategy. They only hold them because in this environment even toxin could end up valuable!
It's like puttin a Bil on red AND black. When one makes good they eschew validity of the other bet.

Nov 06 03:39 PM

[Moon Kil Woong:]

Fannie Mae, Freddie Mac, FHA, and Ginnie Mae account for 90+% of the sub jumbo market. They already own the whole market lock stock and smoking barrel. Sadly, they own them at a loss and the taxpayer will be billed regularly. Even so, they continue to write these and buy bad mortgage bonds from the banks at the urging of the administration.

The simple answer is to break them up and strip away government protection. Of course, that would mean that their loans would have to go up to account for real risk like forclosures and defaults rather than sitting at 5.5%. Although this would be bad for the housing market it wouldn't neccesitate taxpayer funding and asking the Treasury and Fereal Reserve to print even more money to buy their bonds merely so they can issue even more of the toxic garbage.

The bailout continues. It's just been morphed into something that doesn't need a vote by cowardly politicians which have delegated away their powers and burned the US Constitution.

Nov 07 12:47 AM

[Moochacha:]

If they should break up Fannie and Freddie then they should also break up the big banks that got bailouts. There was certainly more than a whiff of moral hazard, since they should have well known that the junk they were creating would eventually be a house of cards.

A few details you forgot to mention is that Fannie and Freddie have been buying up qualified MSB's (Mortgage Backed Securities) from the banks who created the toxic brew to begin with.

The banks got bailout money because of a self made crisis, they were too big to fail remember. Now they want Fannie and Freddie to break up, since they have cleaned up the paper they have bought from the banks, and they can all have a share.


On Nov 07 12:47 AM Moon Kil Woong wrote:

> Fannie Mae, Freddie Mac, FHA, and Ginnie Mae account for 90+% of
> the sub jumbo market. They already own the whole market lock stock
> and smoking barrel. Sadly, they own them at a loss and the taxpayer
> will be billed regularly. Even so, they continue to write these and
> buy bad mortgage bonds from the banks at the urging of the administration.
>
>
> The simple answer is to break them up and strip away government protection.
> Of course, that would mean that their loans would have to go up to
> account for real risk like forclosures and defaults rather than sitting
> at 5.5%. Although this would be bad for the housing market it wouldn't
> neccesitate taxpayer funding and asking the Treasury and Fereal Reserve
> to print even more money to buy their bonds merely so they can issue
> even more of the toxic garbage.
>
> The bailout continues. It's just been morphed into something that
> doesn't need a vote by cowardly politicians which have delegated
> away their powers and burned the US Constitution.

Nov 07 02:13 AM