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

To: Haim R. Branisteanu who wrote (133387)	11/7/2001 11:07:47 PM
From: LLCF	Read Replies (1) \| Respond to of 436258

<Jeff, the problem is that FNM does not hold the mortgages or a very little part of it. It is all securitized. > This is incorrect... from FNM's profile: "Fannie Mae does not directly lend money to homebuyers, but works with lenders to make sure that there is no shortage of funds available for mortgage loans. The method in which Fannie Mae accomplishes this is by purchasing mortgages from a variety of institutions that make up the primary mortgage market. Primary market lenders include mortgage companies, savings and loans, commercial banks, credit unions, and state and local housing finance agencies. These are the businesses where the mortgages are originated and the funds are loaned directly to the borrower. Fannie Mae then buys the mortgage, thus allowing the primary market lender to replenish their funds and lend more money to homebuyers." FNM holds massive amounts of 'conforming' home loans AND they then effectively insure the ones that ARE securitized... lord knows what the true liablility of THAT is if it was treated as the 'short put option' that it is. DAK