Quote:
Originally Posted by Wayne at Pelican Parts
|
Wayne these links are to a site run by Lyndon LaRouche. He has been preaching imminant doom for decades. Without going into too much detail, it's safe to say that his views on many things are far, far outside the mainstream.
Even if we grant that a stopped clock is right twice a day, and that Fannie Mae (and Freddie Mac) should be better-capitalized, there is no way these companies are going to be the "next train wreck". While it is not impossible Fannie could fail, the events that would take Fannie down would crush many other major firms first.
Fannie Mae has about $44B in capital, according to it's latest 10k for 1997. Fannie lost about $2B last year, so at the rate of last year's losses it would take 22 years to deplete Fannie's capital base.
There are two potential threats to Fannie's solvency. First is that the rate of loss on the $2 trillion of Mortgage-Backed Securities (MBS) that it insures will increase substantially. If those loss rates hit a 1% annual rate that would about halve Fannie's capital. Offsetting that, the vast majority of that $2B is quite low risk - 80% loan-to-value loans or less, to borrowers with good credit scores. Historically, the loss rate on these gurantees (which Fannie reserves for) has been about 3 basis points, or .03%. In 2007 that rate increased to 13 basis points, or .13%. That's a big jump, but still far short of a level that would really threaten Fannie Mae.
The sceond threat is that the market value of its $290B available-for-sale MBS portfolio will decline, forcing Fannie to take a write-down that could materially eat into it's capital base. A big rise in interest rates could potentially cause this, but that's unlikely in the present environment. The other cause could be a huge widening in credit spreads on Fannie Mae securities. Those spreads did widen in 2007, they would have to widen about a further 700 basis points to reduce Fannie's capital by 50%. No sign of anything like that at this point.
One more thing to bear in mind: Although Fannie could use more capital (in my opinion), it has more than twice the capital, relative to its asset size, that it had in 2003. Unlike many other financial firms, Fannie Mae is probably on safer financial ground now than it was five years ago.