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

To: MulhollandDrive who wrote (133468)	7/13/2008 1:30:09 AM
From: XoFruitCake	Read Replies (2) \| Respond to of 306849

"imagine being levered up 60 to 1 on declining assets....there is simply just no 'fixing' this" heh heh, both FNM/FRE are insolvent at this time. However, don't foret their duopoly power of guarantee mortgage with a fee in the future and they can raise fee drastically to make up for their loss now.. it will take quite a few years but they will be able to recoup the loss and more.. The key is that they need more capital now (I saw some estimate that they may loss 40-50B out of all the mortgage mess).. I think one of the proposal floating around now is to have Treasury buying a special class of stock and highly dilutive to the current shareholder.. Will see how it pan out.. But my bet is that one way or the other, their capital requirement is going to get solved and we are turning the corner on this mortgage mess from a bank perspective. Once the FNM/FRE capital requirement is settle, all the other bank can earn their way out of the write down in the next few years. Home price will continue to drop and economy will continue to suck but bank will start to make money again even after write off. Good time will start rolling until Fed start fighting inflation with a new rate cycle. business.timesonline.co.uk US TREASURY secretary Hank Paulson is working on plans to inject up to $15 billion (£7.5 billion) of capital into Fannie Mae and Freddie Mac to stem the crisis at America’s biggest mortgage firms ... Under the terms of the proposed move, the US government would receive a new class of shares in exchange for the capital, which would be hugely dilutive to shareholders.

To: MulhollandDrive who wrote (133468)	7/13/2008 4:59:54 AM
From: RockyBalboa	Read Replies (1) \| Respond to of 306849

60-1 Leverage everywhere. "Undercharged banks; so it was in effect looting or neglecting the fund" FDIC's Insurance Deposit Fund: How's That for Under Capitalized? If you think Fannie Mae (FNM) or Freddie Mac (FRE) are under-capitalized, then how about this very rough, and very non analytical back of the envelope capitalization for the Federal Deposit Insurance Corporation [FDIC] insurance deposit fund? Combined Deposit Insurance Fund Balance - $52.8 billion (before Indy Mac (IMB) failure). Insured Deposits - $4.4 trillion. Reserve Ratio - 1.19%. Of course I am sure there is more to it than that. The FDIC can raise premiums, and ultimately, the U.S. Government is there. Here are some historical nuggets that I gleaned from the same page: 1) The chart goes back to 1990, which is the year that failed assets peaked at $145.339 billion. Indy Mac has $32 billion in assets so we are already at 20% of the 1990 peak. 2) The fund balance went negative in 1991, at $6.9 billion. 3) The current reserve ratio of 1.19% is the lowest since 1995, when it was 1.08%. This is calculated before the latest bank failure. If we use the mid point of the estimated losses of $4-8 billion, then the fund balance falls to $46 billion, and the reserve ratio falls to approximately 1.04%. I don't understand why the FDIC let the reserve ratio run down from a high of 1.38% in 1999, considering that everyone and their mother saw this storm coming. During the good times they should have over-assessed the banks to prepare for this. seekingalpha.com