Clown-Free Zone... sorry, no clowns allowed Message Board

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Pastimes : Clown-Free Zone... sorry, no clowns allowed

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To: Haim R. Branisteanu who wrote (133387)	11/7/2001 10:09:16 PM
From: Ken98	Read Replies (1) of 436258

Haim, a good portion of fannie and freddie mortgages are sliced and diced as mortgage backed securities, but they nonetheless hold a lot in their own account ($662B for fannie at end of Q2). The real problem that no one focuses on is their off-balance sheet liabilities in the form of credit enhancements for those MBS and for hundreds of millions of dollars of apartment loans. The last time I looked, fannie alone had issued over $1 TRILLION in such enhancements. These do not appear on their balance sheet as a liability and (to the best of my knowledge) they do not maintain a loss reserve. They do, however, book the $350M in fee income quarterly for such credit enhancements. What if you applied a "normal" default rate onto that portfolio - for example that which might exist during a "normal" recession? Especially with regard to the apartment portion of the portfolio? And then there is, as you say, the Finova risk of borrowing short and lending long. Ultimately this will make the S&L bailout look like child's play. Regards, Ken See link below: fmwatch.org

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