Fannie Mae Looks Like Hell

Fortune magazine reported that the lender changed the way it discloses bad loans, which could be masking rising credit losses:

Investors might want to take a closer look at Fannie Mae's (FNM) latest earnings report. Lost in the unsurprising news of the mortgage lender's heavy losses was a critical change in the way the company discloses its bad loans -- a move that could mask that credit losses that are rising above levels that the company predicted just three months ago.

Without the change in disclosure, an important yardstick for credit losses that Fannie Mae provides to investors would have looked much worse than it did in financials filed last week.

Fannie Mae's potentially misleading disclosure comes at a crucial time for the company. Fannie Mae was severely penalized last year for overstating earnings and for a lack of oversight. As part of its punishment, the amount of home loans that Fannie Mae can make was limited.

There’s a quick and dirty look at Fannie Mae at the chart below.

Friday morning, Fannie Mae stock was down as much as 10%, and it closed the day down 5.5%.

The charts looks eerily similar to Tyco (TYC) back in the days pre-disaster - and where there is smoke, there is often fire.

Click to enlarge:

Source:

Fannie Mae's fuzzy math
Peter Eavis
Fortune, November 15 2007: 9:29 AM EST

Comments

[John McLeod:]

Tanta at Calculated Risk blog has a long detailed rebuttal to Eavis that is a must-read for anyone trying to make sense of this story.

2007 Nov 19 10:24 AM