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Strategies & Market Trends : The Residential Real Estate Crash Index -- Ignore unavailable to you. Want to Upgrade?

To: Oblomov who wrote (2685)	5/23/2002 11:07:08 PM
From: The Duke of URL©	Read Replies (1) \| Respond to of 306849

Thank you for your response. But I assume you have not looked at the balance sheet of FNM and are just speaking hypothetically. The problem that I have is that the example you gave technically would have no material economic significance to a company. IF the risk of repayment were of concern to Franklin Raines, then he would be much better off simply selling the original traunch to the market. If he swaps the interest rate for 10 year tbills, his rate of return is substantially diminished both by the cost of the "risk" of repayment AND the lower interest rate which would go directly to quarterly income of the company which is exactly opposite of why he warehouses the loans in the first place. In fact, under your suggested answer, if interest rates go up, he is screwed. As I explain, if interest rates stay down, he has just decimated his quarterly earnings, if interest rate go up, the "risk" of repayment is not a risk, it is a reality. Let's assume, just for a moment, that interest rates are going to go up. The "counterparty" who is really the same bank that originated the loan, now has locked in bonds that go towards zero in market value. If interest rates go up then the number of people who want to buy a house goes down and that same "counterparty" has fewer loans to originate. No, I think in this special case the use of the term "counterparty" applies not to someone one the other side of a typical transaction, but someone RELATED to fannie mae, more closely than the usual terms for people on the other side of the contract, will admit. Oh, I forgot, the whole thing is Federally Insured anyway so I guess it won't matter when it collapses. Right???? But I would like to hear from someone who has actual knowlegde of the real transactions that fnm has entered into.