ASG

John Hussman: Can the Emergency Housing Bill Be Fixed?

The author makes the claim:

"One shortfall of the bill is that it doesn't appear to impose sufficient costs on Fannie Mae and Freddie Mac, <b>given that those institutions bought so many bad loans originated by careless lenders"</b>

We hear this claim repeatedly made about Fannie Mae but curiously there is NEVER any factual support offered to prove it ....

The reality and reason is that there is not factual support for this claim ... a review of Fannie Maes loan portfolio shows a tiny fraction of their portfolio in subprime loans - a fraction of 1% - and likewise their ALT-A exposure is similarly limited at appx 10% of their total portfolio

A similar review of default and more importantly actual foreclosure rates shows that Fannies portfolio is performing very well - with both default and foreclosure rates far below industry standards

Additionally, a legitimate honest review would show that they have stopped entirely buying subprime, and almost eliminated ALT-A purchases as well

Again - a simple review of Fannie Maes real numbers would show a strong portfolio performing well above industry standards - it would show very good avg credit scores - 721 FICO - and 90+% fixed rate (not ARM) loans

It would also show, despite its low default and foreclsoure rates, support for a decreasing direction in both

And as such that Fannie Mae, rather than the albatross it is claimed to be is actually an excellent steward of the trust placed in it

An honest review would show, absent the ridiculous "mark to market "fair value" write downs (which really mean "mark your perfectly good fully performing assets down to fire sale liquidation prices"), Fannie Mae is making very good money ... $3.4 billion in interest and guarantee income in Q1 2008 alone ....

Fannie Mae is not in any way, other than if you use accounting rule forced "paper" losses not supported by real world performance, insolvent or in trouble - at least not in their assets - their loan portfolio ....

That does not seem to prevent ignorant investors - who apparently aren't smart enough to do their own research, from riding the wave of media hype right into the ground ...