here a primer on fnm, fre which explains me a lot and raises new questions. Have they already been looted and forced to buy junk meat?
seekingalpha.com
Insurance: 50bps p.a. (thats cheap in times with arguably 1.0% NPA)
The essential point here is that Fannie and Freddie take on the entire risk of the mortgage defaulting in exchange for an ongoing fee (generally 50 bps per annum).
Bond issuance (who buys them in the future?)
They buy their own mortgages (ones they have seen securitized) and hedge their massive portfolios. They issue bonds at extremely cheap levels to fund these activities. One former treasury official seems to think that this huge funding advantage seems to have translated into a bit of reckless purchasing on the part of the agencies.
...GSEs help lower the costs of borrowing in the mortgage market, which makes housing more affordable and increases homeownership,...
Interesting, then, that their business volume in 2007 had 11% investor properties or second/vacation home.
32% of their business was lending for cash-out refinancings (same table)–those don’t seem to be helping home ownership, and actually reflect a higher risk segment of mortgage loans.
So, Fannie and Freddie own a huge amount of their own product, which is notoriously difficult to hedge, have bought a lot of product fore the sake of buying, and seem to have a portfolio composition that is slightly different from it’s purpose…
Fannie and Freddie were the largest buyers of sub-prime mortgage bonds ...
Freddie owned $100 billion of these sub-prime securities (according to OFHEO, page 43, pdf) where 21% of loans were 60+ days delinquent.
phx.corporate-ir.net
Theres one more very important figure in FNM aside from risk figures:
Their Interest income collapsed because they simply can´t hedge their portfolio. Could be negative in 2008. Subtract derivative losses in 2007 and the interest income is 0.
2005 $ 11,505 1.31%
2006 $ 6,752 0.85%
2007 $ 4,581 0.57%
page 61
phx.corporate-ir.net
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