Demystifying the GSE's Fannie Mae and Freddie Mac

NEW -> Contingent Buyer Assistance Program
Ok, by the time I finish typing this up it will be well past 12, and it will no longer be Thanksgiving, which means I do not have to play nice.





The NY Times is at again with crappy reporting. <a href="http://www.nytimes.com/2007/11/23/business/23norris.html?ref=business">A Bad Loan (and bad reporting) by Any Other Name</a>.





<em>Freddie Mac, the government-sponsored mortgage lending enterprise, said this week that enough borrowers were defaulting on loans made this year or last that it needed to mark down the value of the loans by $1.2 billion.





Moreover, the $1.2 billion in write-downs on recent mortgages, while less than a quarter of 1 percent of the mortgage pool in question, are only a start. Those losses are from loans that are already in foreclosure or close to it, or from homes where default seems near because of job losses.</em>


<em>


</em>Really? <a href="http://www.freddiemac.com/investors/er/pdf/2007core-tbls_112007.pdf">No where</a>, anywhere, <a href="http://www.freddiemac.com/investors/er/pdf/financial-statements_112007.pdf">in anything</a> that <a href="http://www.freddiemac.com/news/archives/investors/2007/3q07er.html">Freddie reported</a> mentioned <em>writing down</em> mortgages. By saying this, it is implying that some of the mortgages they have are now <em>worth </em>$1.2bil less than they once were. THIS IS NOT TRUE! What Freddie did, was they set aside an additional $1.2bil in cash for loss reserves. How this has anything to do with writing down mortgages is beyond me. They lost about $12k on each REO that they sold, and if they sold all their REOs that would be a loss of $143mil. Even if all of the recent additions of delinquent loans had to be sold, that would be a loss of $288mil. That is only 23.4% of their total loss reserves of $1.84bil, and they used only 18.7% of their $790mil loss reserves they had for that quarter. Could they use up the $1.2bil additional loss reserves? Sure, but even the most bearish opinion will say that will not be used up until 2010.





Did they have to mark to market the mortgages that they bought from the guarantee portfolio? Yes, and they took an unrealized loss of $483mil. Will they <em>really </em>lose $483? No, and they will get at least half of that back. This is coming from a housing bear, and unless the housing market has dropped 50%, this won't happen. If the housing market dropped 50%, I may not be a bear, or we are in a severe depression.


<em>


</em>

<p><em>How many of those loans were subprime? None. But that does not make the losses any less real. Freddie Mac historically did not buy subprime loans.</em></p>

<p>Am I crazy, when I think this implies that Freddie didn't buy subprime loans, or at the very least their subprime exposure is minimal? Did Floyd miss <a href="http://www.freddiemac.com/investors/er/pdf/2007core-tbls_112007.pdf">page 12, line 12, and footnote 5</a>? Because, somehow I found it, and I don't get paid to report on this. It states they have $105 <strong>BILLION </strong>in subprime loans and they "believe" that $53 <strong>BILLION </strong>is ALT-A. That is more than 22% of their portfolio. Not exactly chump change.


</p>

<em>Nina loans?</em>

<p><em>The abbreviation stands for “No income, no assets.” It does not mean the loans went to people without either assets or income, only that the borrowers were not asked if they had either. I had known about “stated income” loans — also known as “liars’ loans” — in which the bank took a borrower’s word for how much he earned. But I had not realized you could borrow money without even being asked about your income.</em></p>

<p><em>Starting this month, Freddie won’t guarantee such loans, which seem to default more often than other loans.</em></p>

<p>Have you been living in a frickin hole? Quick! Someone add another passenger seat to the back to economic reality spaceship. If they could add all the passengers needed, it will be bigger than the <a href="http://starwars.wikia.com/wiki/Death_Star">death star</a>. Welcome Floyd, I come from the blogs, and if you read them, you would know about NINA loans. Yes Floyd, all you had to do was enter a borrowers name, address, and social security number on the loan application. If they had a high FICO and a low LTV, they would get a loan approval. It would also be nice to know, how much of their portfolio are NINA loans? Since they seem to be a high default loan, it also would be nice to know how much is in default, and how much of these NINA loans account for the loans in default? If this was such an important fact to point out, one would think you could back it up with some stats.


</p>

<p>What the hell happened to the NY Times? Add Floyd, along with Gretchen, to the list of fact lacking garbage reporter list. This is an awful article, and truly isn't worthy of the NY Times. Seriously, I am just a blogger who read the filings, and somehow I understood it. It was all there plain as day.


</p>

I checked <a href="http://calculatedrisk.blogspot.com/">Calculated Risk</a> and Tanta has not ranted about this... yet. I will email her this post. This kind of <a href="http://www.urbandictionary.com/define.php?term=craptastic">craptastic</a> reporting deserves the snarkiness that only Tanta can provide.
 
"<em>But I had not realized you could borrow money without even being asked about your income.</em>"





Interesting that this reporter chose to broadcast his extreme ignorance on the subject he is covering for dramatic effect. It would be like he said "borrowers are not paying back their loans. I didn't know they could do that?"





It angers me when I read bullshit bullish articles, but it annoys me just as much when I read inaccurate bearish ones. It serves no one to peddle sensational BS.
 
<p>It's sad when someone is so stupid that he doesn't even know he's stupid. And at the NYTs too! After reading this and other blogs cited, I realize even more how awful the traditional media are even NPR, the Times and the WSJ. I read about stuff here 3 weeks before it's reported in the WSJ. What's with that?</p>

<p>I knew they over did the sensational stuff, but I thought the business news was reasonably timely and accurate--not.</p>

<p>Maybe it's that the business news has become sensational (not in a good way) but now they are under sensationalizing it not over sensationalizing it, as they do with mine disasters, kids down wells and the like.</p>
 
<p>liz,</p>

<p>The delay is (sometimes) caused by fact-checking and independent confirmation. When it's clear neither of those occured, I suspect that articles like these are pulled from some file to fill space and mood. The major media decide what we need to know and when we need to know it, but blogs just toss out stories on a whim. Sorting our truth from speculation and conspiracy is left to the reader, so I try to do my own fact-checking.</p>

<p>IR, peddling sensationalism goes as far back as the town criers in the days of yore. We just have more people yelling back now </p>

<p>(side note: liz, to do a "Thanks" you click on the grey, underlined link on the right side of a comment, where "edit" is for your own post)</p>
 
<p>I expect it to be better than the local rag, which has an unbelievably stupid editorial today. But it is no more than I expect, as it totally panders to the readership, by say, often posting letters about how Darwin was wrong, altho never actually opining to that themselves. Weird mixture of people here, I'm not used to living in the South(Miami being a foreign country), and a percentage of the people are bible banging Southerners. </p>

<p>If I knew how, I'd scan it in and post it. Maybe I'll ask the hub, the rocket scientist.</p>

<p>I tend to take things at face value, mull over them for a while and then come to my own conclusions. Sometimes it takes me a day or 2 to realize that person/newspaper/whatever just said a really stupid thing.</p>

<p>I prefer whim and randomness. Since Catholic school, I've truly hated for people to tell me what to think. But, Catholic school did an excellent job of teaching me HOW to think, thus shooting selves in collective foot.</p>
 
Since the writer is a columnist, he has a lot more freedom to use "I" and "me" since it's his opinion that readers are supposedly looking to find. Columnists are the only ones who usually get to insert themselves into the story, and it can be the fastest way to distinguish this from a feature or news story. Using I and me, though, can convey a certain arrogance that they feel the need to be in the story (or that in a way they're bigger than the story itself), and it doesn't always work. The biggest and best ones, though, can usually pull it off nicely because to loyal readers they do tend to be bigger than the stories.





There's also the usual 10-year-old mug shot that goes with a column. It used to be funny to me how NONE of my paper's columnists looked anything like their photos in the paper - they were all in reality significantly older.





Graphrix's points are interesting - if the so-called "chief financial columnist" of the NY Times is so clueless, what does that say about the competency of financial reporters in general? The NY Times is the most-respected paper in the country, and its writers are also very well respected (and influential to many, many readers) . I don't blame reporters who are thrown into beats they aren't familiar with and have to learn on the fly, because the ones who put in the effort get better. It's another thing to be a top columnist and be ignorant.
 
<p><a href="http://www.reuters.com/article/ousiv/idUSN2331948520071123">Freddie to raise $5 bln in preferred stock sale: report</a></p>

<p>NEW YORK (Reuters) - Freddie Mac, the U.S. mortgage finance company that stunned Wall Street with a $2 billion quarterly loss earlier this week, plans to sell $5 billion of preferred stock in a deal to be launched as early as next week, the Wall Street Journal said on Friday.</p>

<p>The company had said earlier in the week that it planned to raise capital in a "large transaction" in the very near term, while several analysts had said it would need to raise at least $5 billion.</p>
 
<a href="http://www.economist.com/daily/news/displaystory.cfm?story_id=10167658">At least the Economist reports the truth.</a>





<em>Actual credit losses are only part of the problem. Freddie set aside $1.2 billion for such hits in the third quarter. Its accountants forced it to mark down other assets by three times that amount to reflect sagging market prices, even though most of them will be held to maturity. Anthony Piszel, the firm’s chief financial officer, says that its numbers are distorted by lots of “uneconomic noise” such as the requirement that Freddie mark its derivatives book to daily market prices, while not being allowed to record offsetting gains in its loan portfolio until much later.</em>
 
<p><a href="http://news.yahoo.com/s/ap/20071127/ap_on_bi_ge/freddie_mac_capital;_ylt=ArHpE9RChZA6dZ6Si0k8D3ayBhIF">Freddie Mac to sell stock, cut dividend</a></p>

<p>WASHINGTON - Freddie Mac halved its dividend and unveiled plans to sell $6 billion of preferred stock to bolster the mortgage investor's finances in anticipation of more losses, the company said Tuesday. </p>

<p>Freddie Mac, chartered by Congress to buy home loans from mortgage lenders, is the nation's No. 2 buyer and guarantor of home loans. It will sell $6 billion of a special class of stock.</p>

<p>The money raised through this sale will be used to buttress the company's balance sheet "in light of actual and anticipated losses," Freddie said in a statement.</p>
 
You must log in or register to reply here.
Back
Top