the detox column is the epitome of permabearishness, and as in most of their dire commentaries, it appears they have again completely missed the boat in this one
all of this accounting mumbo jumbo makes for a seemingly alarming diatribe, but the operations of FNM come down to a simple premise: they borrow money at low rates and loan it out at higher rates as mortgages, and they hedge their interest rate risk using options
as such, FNM has various gains and losses on their hedges, and on mortgages which are refinanced, but in the long run, they will only "become technically insolvent" if the entire financial system of this country falls apart, because mortgages are backed with real property, and in the cases where those mortgages are not secured by at least 20% equity in the underlying property, there is PMI in place to cover FNM's risk...even the issuer of the PMI is at little to no risk in the current environment because in the case of a default, they can almost always sell the property for as much or more than is owed on the mortgage, with any losses more than made up for by the premiums they charge the rest of their policy holders
comparing FNM to enron is just plain idiotic, but then again such nonsense is common to this type of journalism, the unfortunate part is that some people will read this article and believe it, and perhaps cast away a perfectly good investment for no good reason at all
ironically, in their release today, the CFO stated that conditions may worsen slightly in the next year, with delinquencies up a bit and less new originations, but they will still meet their earnings projections...of course the detox alarmist will say that is due to their accounting, but the fact is that making fully secured loans is a darn good business, no matter what nonsense the permabears want to print
all IMHO of course |
