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To: Keith Feral who wrote (78030)9/18/2008 1:57:35 PM
From: inaflash  Read Replies (1) of 213176
 
OT: In effect, they have paid absolutely nothing for a $6 trillion mortgage pool with a 10% interest rate. They are bringing in $600 billion a year in interest from FNM and FRE.

True to some degree. (These back of the envelope calculations are based on your $6T number that seems in the ballpark.) However the $6 trillion in paper may only be worth 80-90% that and interest rate is probably closer to 5%. If there 10-20% foreclosure on these loans, the government will have paid $600B-$1.2T for property that may wind up being worth half what they paid (especially after disposition costs). This amounts to $300-$600B in REAL losses. It's possible the interest payments over the years can cover and/or recover these losses, and if the numbers aren't as bad, then the government makes out on this deal. If the economy tanks from here and we go into a recession, the REAL losses can potentially go higher.

Current foreclosure rates are probably running near 1% overall (highly variable depending on loan instrument and creditor risk), but cumulative rate over the years could wind up going much higher. Also, good loans may be taken out at a faster rate than bad loans (this has probably already happened to some degree).

Don't forget, the $6 trillion didn't come from thin air (almost). FNM and FRE borrowed that $6 trillion from the government and are paying interest on those funds to the government.
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