bbzz24

Don't Panic! (GSE Edition)

If you assume 40% loss on the 1% of their mortgages in default that affects their portfolios by 0.4%. Even if you go 5x higher (avg default rate), that will be 2%x5trln or about 100bln or 3.3x bear's bailout. But this is a number on the whole portfolio. Most loans issued pre 2000 would not realize any losses on the outstanding debt as they have 'appreciated' substantially to cover the lender's exposure.

The bigger issue is how such highly leveraged vehicles command strong credit ratings and borrow so cheaply. And how are they going to continue doing business as at present their business model seems faulty and they fully deserve their new monikers fraudy mac and phonie mae.