jonathan

Options Trader: Friday Outlook

I agree with Phil. Unless I have it wrong (could be), my understanding is that Fannie and Freddie do not have much in the way of REAL losses. They are a reporting an enormous amount of Mark-to-Market losses...i.e. if they sold their loan portfolio today no-one would want to buy it...but their business is not in selling loans it is in buying. Their whole purpose is to buy and hold mortgages. So it seems to me that the best (only?) way to fairly value them is on the credit risk. I.e. if they don't sell the loans the mark-to-market is an accounting-ism and as long as the loans are being paid back (or not) the value of the company is entirely a result of the cash flow of mortage payments. Yes, that payment flow will be missing some payments from defaulting owners but that is measurable in their default and foreclosure numbers.

I don't own any as of this second but if I very well may by the end of the day. Obviously the speculative part of the portfolio :)