The Bailout Bus Keeps Rolling......

Looking into the PMI Investor Presentation & MGIC Investor Presentation and their "sky high" ( not just a few billions.... ) in exposure it should be clear that this is also another "hidden" bailout for the banks......The knowledge that the "Bailout Bus" keeps on rolling might explain Cramer´s Bull Case For Banks.... Even if he wasn´t honest enough to mention the "moral hazard trade" in his 10 reason to rush into the banking sector.....;-)

Ein Blick in die PMI Investor Präsentation & MGIC Investor Präsentation die einen "astronomisch" hohen Betrag ( rede nicht nur von einigen Mrd... ) an versicherten Schadensfällen ausweisen genügt um zu erkennen das hier neben den PMI Aktionären und Anleihebesitzern vor allem die Banken begünstigt werden die seinerzeit die Versicherung gezeichnet haben......Genau diese Bailoutgarantie erklärt auch Cramer´s Bull Case For Banks... Schade nur das er nicht so ehrlich gewesen ist den "Moral Hazard Trade" unter den 10 Kaufaurgumenten in Sachen Banken aufgeführt hat.... ;-)

H/T Matson

Insuring Against an End to Moral Hazard WSJ

The bailout bus keeps rolling. Last week's programs to forgive mortgage principal were good news for mortgage insurers. But PMI Group's share-price surge had an extra lift from Freddie Mac.

The mortgage giant gave a new PMI subsidiary the green light to write insurance for loans that Freddie guarantees. PMI needed the blessing—and got a similar one from Fannie Mae—because its main subsidiary may be banned in some states from writing policies if it breaches regulatory capital rules.

If that happened, PMI's future would be in even greater doubt. The company lost nearly $1.6 billion over the past two years and warned that "as a result of continued losses, we will need to raise significant additional capital and/or achieve significant statutory regulatory relief."

What is curious is that Freddie's and Fannie's support potentially puts taxpayer dollars at risk, while helping PMI shareholders—the company's stock jumped more than 40% last week. The moves also come as debate continues over how much skin in the game homeowners should have.

Help for PMI, and for Mortgage Guaranty Insurance Corp. last month, is also notable because Freddie has suggested that firms like this mightn't be able to meet future claims.

Freddie in its annual filing said "some of our mortgage insurers lack sufficient ability to fully meet all of their expected lifetime claims-paying obligations to us as they emerge." PMI has the lowest credit rating of Freddie's rated mortgage-insurance counterparties.

With the government, through Fannie and Freddie, willing to play such games to keep small fry like PMI and MGIC alive, it shows quite how far away Uncle Sam is from a real solution on "too big to fail."

See also As GSE Delinquencies Hit All Time Highs, What About The Monolines? ZH

Got GOLD ?

Quote Of The Day..... "The Defaults Are Worth It "

Looks like i was spot on ....."the Phony Mae & Fraudie Mac pain wasn´t enough......."

Sieht ganz so aus als wenn ich nicht ganz verkehrt gelegen habe......."der Phony Mae & Fraudie Mac Schaden doch noch nicht hoch genug war....... "

U.S. Mortgage Backer May Need Bailout, Experts Say NYT

Barney Frank, the Massachusetts Democrat who is chairman of the House Financial Services Committee, said in an interview that the defaults were, in essence, worth it.

“I don’t think it’s a bad thing that the bad loans occurred,” he said. “It was an effort to keep prices from falling too fast. That’s a policy.”

With an insured mortgage exposure already running well over $ 600 billion & spiking higher on a daily basis one has to admit that this clown has CHUZPAH! I suggest to read the entire NYT link.... Lots of stuff that makes a GOLDBUG happy......

Wenn man sich jetzt vor Augen führt das sich die o.g. Institution bereits jetzt für über 600 Mrd $ an wackeligen Hypotheken geradesteht und tagtäglich massivst neue Garantien schreibt muß man diesem Clown zumindest zugestehen das er CHUZPAH hat.....Ich empfehle sich den folgenden Link der NYT komplett durchzulesen.....Läßt das Herz eines GOLDBUGS höher hupfen......

The HYPOCRITE himself in 2005.......



Rolfe Winkler has nailed it a few weeks ago!

Rolfe Winkler hat es bereits vor einigen Wochen treffend formuliert...

"It’s equally likely the agency will continue to be a conduit through which the Obama administration funnels cash to the housing market"

Over $600 billion of loans backed by the end of this year — many very risky due to very low downpayments — but no chief risk officer….

Especially worrysome when the Fed is the only buyer of agency debt right now......

Das ganze wird noch amüsanter wenn man bedenkt das die Fed momentan der einzige Käufer in diesem Marktsegment ist.....

More on this topic

House Hearing on FHA Capital Reserves Home Economics
Bailout watch, US Federal Housing Administration edition FT Alphaville
FHA Bailout Seen Calculated Risk
FHA: Next Bailout? NC
The Sound Of One Hand Clapping Chris Martenson

"Today I Think Of Myself As A Government Contractor......"

When you here this kind of quote in context with the mortgage business it should be clear that in the not so distant future another not so "insignificant" bailout is already in the cards..... Looks like the Phony Mae & Fraudie Mac pain wasn´t enough.......

Wenn mal soclche Sätze im Zusammenhang mit dem Hypothekengeschäft hört ist der nächste "nicht unwesentliche" Bailout nicht weit.... Sieht ganz so aus als wenn der Phony Mae & Fraudie Mac Schaden doch noch nicht hoch genug war....... Da geht noch was......

No Easy Exit for Government as Housing Market's Savior WSJ

After a year of extraordinary interventions in the economy, the federal government is starting to pare its support for the private sector. It doesn't look that way to Peter Lansing, president of mortgage firm Universal Lending.

The Denver home lender sees every day how dependent the housing market has become on the government. At the height of the boom, just 20% of Universal's mortgages were backed by the Federal Housing Administration, an arm of the government that guarantees loans to borrowers who can't afford big down payments. Today, the FHA accounts for more than 80% of his business. For Mr. Lansing, this represents a new way of life -- more government, more paperwork, but also a lot of sales that wouldn't have happened otherwise.

"Over 29 years in business, we've always thought of ourselves as being in the free-enterprise system. Today I think of myself as a government contractor,"

Over the past year, the government has intervened heavily at essentially every stage of the home-buying process. In fact, more than 80% of the new residential mortgage loans made this year benefited from some form of government support, according to the trade publication Inside Mortgage Finance.

Speaking of CHUZPAH....... Make sure you compare this comment with the last update at the end of the post....Same CEO ......

Einigen Bänkern sind selbstredend auch die 80% noch zu wenig...... Vergleicht den nachfolgenden Kommentar mit dem vom Update am Ende des Posting.... Handelt sich um den selben CEO....

Wells Fargo urges US to boost mortgage market

The US government should help revive the moribund market for big mortgages by getting Fannie Mae and Freddie Mac to buy large home loans from banks, the chief executive of the lender Wells Fargo urged in an interview with the FT on Tuesday. John Stumpf, whose bank originates a quarter of all US mortgages, called for an increase in the size of loans purchased by Fannie and Freddie, the troubled finance groups controlled by the authorities.

Buffet will be proud ......

Buffet wird es freuen.....

Behind FHA Strains, a Push to Lift Housing WSJ

The FHA insures loans secured with down payments as low as 3.5%. But values in many markets in which it has been increasing its activity have fallen far more than that in the past year. The result: A growing number of homeowners with FHA-backed loans owe more than their homes are worth and are more likely to default.

At the end of June, some 7.8% of FHA-backed loans were 90 days late or more, or in foreclosure, according to the Mortgage Bankers Association, up from 5.4% a year ago.

In July, California accounted for 13% of the FHA's mortgages, up from 1.5% in 2006.

Mounting losses have eaten into the FHA's cash cushion. Federal law says the FHA must maintain, after expected losses, reserves equal to at least 2% of the loans insured by the agency. The ratio last year was around 3%, down from 6.4% in 2007.

UPDATE: WaPo: FHA Cash Reserves Will Drop Below Requirement

The Next Fannie Mae : Ginnie Mae and FHA are becoming $1 trillion subprime guarantors WSJ

Only last week, Ginnie announced that it issued a monthly record of $43 billion in mortgage-backed securities in June. Ginnie Mae President Joseph Murin sounded almost giddy as he cheered this “phenomenal growth.” Ginnie Mae’s mortgage exposure is expected to top $1 trillion by the end of next year—or far more than double the dollar amount of 2007. (See the nearby table.) Earlier this summer, Reuters quoted Anthony Medici of the Housing Department’s Inspector General’s office as saying, “Who would have predicted that Ginnie Mae and Fannie Mae would have swapped positions” in loan volume?

Ginnie’s mission is to bundle, guarantee and then sell mortgages insured by the Federal Housing Administration, which is Uncle Sam’s home mortgage shop. Ginnie’s growth is a by-product of the FHA’s spectacular growth. The FHA now insures $560 billion of mortgages—quadruple the amount in 2006. Among the FHA, Ginnie, Fannie and Freddie, nearly nine of every 10 new mortgages in America now carry a federal taxpayer guarantee.

Banks Load Up on Mortgages, in New Way WSJ

Banks have been silent partners in the meteoric rise of the Federal Housing Administration.

In the past year, the nation's financial institutions have snapped up securities backed by Ginnie Mae, a government-owned agency that guarantees payments on mortgages backed by the FHA. That helped drive demand for Ginnie securities and created an outlet for billions of dollars of FHA-backed loans made to borrowers who in many cases couldn't afford big down payments.

As of June 30, the roughly 8,500 federally insured banks and thrifts were holding $113.5 billion of Ginnie securities, compared with just $41 billion a year earlier, according to a Wall Street Journal analysis of bank financial disclosures. It is the largest amount that banks have reported holding since at least 1994.

Banks, sometimes with the blessing of federal regulators, have been loading up on Ginnie securities for one main reason: They make their balance sheets look healthier. Since the securities are guaranteed by the government, federal banking regulators have deemed them risk-free, meaning that adding them to a bank's investment portfolio, or replacing assets deemed riskier, lowers the overall risk of the portfolio in the eyes of regulators.

Some banks have used government cash infusions under the Troubled Asset Relief Program to buy Ginnie Mae bonds.

Holding Ginnie bonds help banks look better because federal bank-capital guidelines give the Ginnie securities a "risk weighting" of 0%. That means banks don't have to hold any cash in reserve to protect against losses. By contrast, securities backed by Fannie Mae and Freddie Mac, the two mortgage giants seized by the government, carry a 20% risk weighting, meaning some cash needs to be set aside to hold them, even though most banks and investors think there is scant risk of Fannie or Freddie securities defaulting. Privately issued mortgage-backed securities can receive risk weightings of 50%, while many other types of debt carry 100%.

Because of the different risk weightings, bankers say they are selling relatively safe assets like Fannie securities and replacing them with Ginnie securities. The move doesn't shrink banks' balance sheets or remove their troubled assets. But it reduces their total assets on a risk-weighted basis. That is important because risk-weighted assets are the denominator in some key ratios of bank capital.

Like some peers, First State bankrolled those purchases partly with taxpayer dollars that were intended to stabilize the banking industry and jump-start lending. The 32-branch bank used a "significant portion" of the $20 million it received through TARP to buy Ginnie securities, Mr. Clark said.

Mr. Clark credits the strategy with helping First State preserve its capital ratios even as loan defaults swelled to $9.5 million on June 30 from $1.6 million a year earlier. During the same period, its total risk-based capital ratio climbed to 11.3% from 10.7%. That gave First State some breathing room above the 10% ratio regulators require for banks to be deemed "well capitalized."

Ms. Keeling acknowledged that the strategy doesn't ease the bank's underlying problems. "The whole capital ratio can be manipulated ... in many ways to make it appear better or worse," she said.

In St. Augustine, Fla., Prosperity Bank increased its holdings of Ginnie securities tenfold over the past year. The lender, with 20 branches and $1.2 billion in assets, simultaneously dumped most of its Fannie and Freddie securities, even though they seemed safe.

"There's no more risk in Fannie and Freddie securities than in a Ginnie security," despite the different capital treatments, said CEO Eddie Creamer.

Ginnie and the FHA, units of the U.S. Department of Housing and Urban Development, have become two of the most powerful mortgage financiers in the U.S. When banks make home loans, the FHA insures them against default. Then the mortgages are pooled together and packaged into mortgage-backed securities. Ginnie guarantees that buyers of those securities -- including banks and other investors -- will continue to receive interest and principal payments on the debt, even if borrowers start to default.

Rolfe Winkler nails it!

Rolfe Winkler formuliert es perfekt!

"It’s equally likely the agency will continue to be a conduit through which the Obama administration funnels cash to the housing market"

Over $600 billion of loans backed by the end of this year — many very risky due to very low downpayments — but no chief risk officer….

A canary in the coal mine was the raid on Taylor Bean & Whitaker, a multi-billion dollar lender that had seen its FHA lending business expand very quickly over the past year. But TBW’s underwriting was terrible so FHA suspended them from issuing its loans. By the end, TBW’s business had grown to $100m-$150m worth of loans per day. The suspension put TBW out of business overnight.

Karl Denninger is also "passionate" when it comes to the FHA topic..... ;-)

Wer die etwas "deftigere" Sprache bevorzugt dem empfehle ich die FHA Sichtweise von Karl Denninger.... ;-)

Uncle Sam Bets the House on Mortgages WSJ

Right now, housing remains on government life support. Treasury-backed entities are guaranteeing about 85% of new mortgages, while the Fed buys 80% of the securities into which these taxpayer-backed mortgages are packaged

Rather than trying to implement change, the government appears to be reinforcing a system in which it provides subsidies to an asset that periodically goes through highly leveraged speculative booms.

Despite the bust, conforming mortgages that qualify for government backing remain mispriced. That can be seen in the fact that banks have no desire to keep the most common mortgage on their books.

Wells's chief executive, John Stumpf, recently said: "We're not putting on 30-year [fixed-rate] mortgages at these rates."

So why should the taxpayer take them?

Stuffing Sam Sudden Debt

In financial market parlance "getting stuffed" is being left with a losing position in a trade because the counterparty to the transaction claims to not recognize it (also known as DK, or Don't Know). It's equivalent to someone dropping their trash on your doorstep and walking away, claiming it's not theirs.....

The following chart gives the breakdown in the 1Q2009; a massive 41% of all mortgages outstanding are now directly owned or guaranteed by Uncle Sam, since Fannie and Freddie have been placed into federal conservatorship.

Is There Anybody Out There Believing That There Will Be A "Transparant" Bad Bank........?

If the recent handling from the Fed & Treasury ( and their western counterparts ) is offering any guide i think the chances that we will see much transparancy is not looking very promising ( same has hapened in Germany with the IKB bailout ) . That Obama has choosen Geithner ( just a younger version of Paulson ) isn´t quite helpful and was a big disappointment ( see also the "rant" from Barry Ritholtz The Moral Hazard of the “Bad Bank” ). Read the following articles and it should be clear that there is no way the Bad Bank will pay nowhere near market prices and make the process of how they "model" their inflated "market price" transparent..... Just another attempt to rip off the taxpayer and to avoid the long overdue punishment of equity and especially debt investors......



Wenn die bisherige Handhabung der Bailouts von Seiten der Fed und des Finanzministeriums ( gleiches gilt auch für Steinbrück in Sachen IKB/KFW!) irgendwelche Anhaltspunkte geben wie es bei der kommenden Bad Bank um die Transparenz bestellt sein wird sieht es, wie nicht anders zu erwarten, zappenduster aus...... Trotz aller großen Reden Obamahs das in allen Bereichen vollkommene Transparenz obersterstes Gebot seiner Regierung sein wird. Das Obama ausgerechnet Geithner nominiert, hat der schon zu Zeiten als Fed Verantwortlicher eine einzige Katastrophe gewesen ist und mir eher wie ne jüngere Version von Paulson vorkommt, spricht Bände ( siehe auch die wenig schmeichelhaften Kommentare zu Geithner via Barry Ritholtz The Moral Hazard of the “Bad Bank” )...... Lest bitte die folgenden Artikel und es dürfte kristallklar sein das die Bad Bank nicht mal ansatzweise aktuelle Marktpreise zahlen wird. Zudem dürfte es keinerlei schlüssige Erklärung geben wie die Bad Bank die deutliche Überbezahlung der Anlagen rechtferigen kann...... Alles in allem ein weiterer Versuch den Steuerzahler ohne entsprechenden Gegenwert die Last der geballten Inkompetenz der Bänker und Aufseher zu schultern..... WICHTIG: Unbedingt diesen Link "Bad Bank - Bad System" von "Querschüsse" lesen um am Beispiel der Wets LB mit offenem Mund zu bestaunen was für Lasten kommen werden.....

> I think it´s safe to say that you can add central bankers to this list......

> Ich denke man kann getrost auch die Zentralbänker dieser Welt dieser Liste (Cartoon) zuordnen.....

Obama Records Pledge Tested By Citigroup Guarantees Jan. 29 (Bloomberg) -- U.S. government guarantees on securities totaling $419 billion for bank bailouts provide an early test of President Barack Obama’s pledge to be open with taxpayers about what they have at risk in the credit crisis.



Bloomberg News asked the Treasury Department Jan. 26 to disclose what securities it backed over the past two months in a second round of actions to prop up Bank of America Corp. and Citigroup Inc. Department spokeswoman Stephanie Cutter said Jan. 27 she would seek an answer. None had been provided by the close of business yesterday.



As Congress debates an $875 billion economic stimulus bill, the guarantees represent a less publicized commitment. The public’s stake has grown along with assurances tying the Treasury to the fate of corporate loans and securities backed by home mortgages, car loans and credit card debt.



Obama promised a new era of government openness as he took office last week, issuing a statement telling agencies “to adopt a presumption in favor of disclosure” in responding to requests under the Freedom of Information Act. Treasury Secretary Timothy Geithner and Lawrence Summers, head of the National Economic Council, said they would emphasize accountability and transparency in using the second half of a $700 billion bank bailout fund.



New Disclosures

Late yesterday, Geithner’s office put hundreds of pages about the fund on the department’s Web site. They did not include documents describing the guaranteed assets.

Members of Congress from both parties have complained about the Bush administration’s lack of disclosure about the spending of the first $350 billion from the fund.



“We have requested information in the past three months and have been rebuffed by the administration,” said Representative Scott Garrett, a New Jersey Republican and member of the House Financial Services Committee. “President Obama comes down the pike now, and maybe, in a week or a month, we’ll know.”

Last fall, the Federal Reserve declined to identify the recipients of about $2 trillion in emergency loans from U.S. taxpayers or the assets the central bank is accepting as collateral.

Fed Is Sued

Bloomberg News asked for details of the lending on May 21 and filed a federal lawsuit against the Fed Nov. 7 seeking to force disclosure. The loans were made under the terms of what became 11 programs in the midst of the biggest financial crisis since the Great Depression. Arguments in the suit may be heard by a judge as soon as next month, according to the court docket.



Bloomberg filed a FOIA request yesterday for the list of what was covered by the Citigroup and Bank of America guarantees. Bloomberg asked for records on the fees paid by banks to the government, which securities were rejected for guarantees, as well as any contracts for data services and experts to assess the value of the securities.



Under the information law, passed by Congress in 1966, Treasury has 20 working days to respond to Bloomberg’s request. The measure allows nine exemptions, such as trade secrets or national security, for blocking disclosure.



During his confirmation, Geithner, the former president of the Federal Reserve Bank of New York, didn’t directly answer a senator’s request for more information about Maiden Lane LLC, a special-purpose entity that holds assets from the takeover of Bear Stearns Cos. by JPMorgan Chase & Co.



$301 Billion Guarantee

Citigroup’s guarantee package, completed Jan. 16, totals $301 billion. It kicks in after the bank goes through its $9.5 billion in current loan loss reserves and the first $29 billion of losses. The government also gets $1 billion of the bank’s benefit from hedging contracts. The Treasury, the Federal Deposit Insurance Corp. and the Fed then assume 90 percent of losses from those assets.

Citigroup’s guarantees include $191 billion of consumer loans, with $55.2 billion of them second mortgages, according to a Jan. 16 news release from the bank. Securities backed by commercial real estate total $12.4 billion and corporate loans add $13.4 billion.

> Unfortunately the US is not alone in this kind of behavior ( see ING Gets Massive Dutch Bailout.... Dumping € 27.7 Billion Alt-A RMBS On The Dutch Taxpayer........ ) On top of this our rumored German version of the Bad Bank is structured in a similar way.......

> Unglücklicherweise macht dieses Beispiel Schule..... ( siehe ING Gets Massive Dutch Bailout.... Dumping € 27.7 Billion Alt-A RMBS On The Dutch Taxpayer........ ) Nach allem was man von Steinbrück hört droht uns in Deutschland eine ähnlich skandalöse Konstruktion......

Citigroup has received $45 billion in cash from selling preferred securities to the government under the Troubled Asset Relief Program.

$118 Billion

Bank of America’s agreement, announced the same day, is similar: $20 billion in cash aid, bringing the total to $45 billion,

and $118 billion in asset guarantees. The government said the assets included securities backed by residential and commercial real estate loans and corporate debt and associated derivatives and hedges

. Scott Silvestri, a spokesman for the Charlotte, North Carolina-based bank, declined comment.



Merrill Lynch & Co., which was bought by Bank of America, was the underwriter for $49.4 billion in defaulted collateralized debt obligations, the most of any bank, since October 2007, according to data compiled by Standard & Poor’s and Bloomberg.



Merrill was the biggest CDO underwriter from 2005 to 2007, with more than $102 billion, said Sanford C. Bernstein & Co. research analyst Brad Hintz.



Since October 2007, Bank of America underwrote under its name $15.1 billion in failed CDOs, according to S&P and Bloomberg. Banks have so far understated losses on such securities, and “the tsunami is on the horizon,” Hintz said.



‘Going to Be Huge’

Past sales of CDOs valued them at pennies on the dollar. In July, New York-based Merrill sold $30.6 billion of the securities to an affiliate of the Dallas-based investment firm Lone Star Funds for $6.7 billion. Merrill provided financing for about 75 percent of the purchase price, and the sale valued the CDOs at 22 cents on the dollar.

“By June, it’ll become clear that these guarantees are being drawn and they’re going to be huge,” said Christopher Whalen, managing director of Institutional Risk Analytics, a financial-services research company in Torrance, California. “Every day that goes by, Congress figures it out just a little more.”

High Dive Into the Toxic Pool WSJ

Goldman Sachs Group estimates that troubled assets could exceed $5 trillion, if defined as assets that could show a loss rate close to, or above, 10%. To put that in context, $5 trillion is just over 40% of the $12.3 trillion in total assets of U.S. commercial banks.

> Some of the estimated loss rates ( Commercial, Alt-A, Second Lien) seems overly "optimistic...... Will be (no) fun to watch how big the haircut will be and what kind of "magic" formula they will use to defend their "value estimate" when the Bad Bank will take over the toxic paper..... Here is another view via Naked Capitalsim Goldman: Bank Rescue May Reach $4 Trillion (and "Bad Bank" Issues)

> Nach allem was ich so mitbekomme sind einige der Annahmen zu den kommenden Verlusten ( gewerbliche Immobilien, Alt-A, Home Equity Loans) reichlich "optimistisch......Wird sicher (k)ein Spaß zu sehen sein zu welchen Werten diese Positionen in die Bad Bank gehen werden und mit welch "magischer" Formel der Wertansatz gerechtfertigt wird..... Eine weitere Meinung kommt von Naked Capitalism Goldman: Bank Rescue May Reach $4 Trillion (and "Bad Bank" Issues)



Option ARMs See Rising Defaults WSJ

Nearly $750 billion of option adjustable-rate mortgages, or option ARMs, were issued from 2004 to 2007, according to Inside Mortgage Finance, an industry publication. Rising delinquencies are creating fresh challenges for companies such as Bank of America Corp., J.P. Morgan Chase & Co. and Wells Fargo & Co. that acquired troubled option-ARM lenders.

..... more than 55% of borrowers with option ARMs owe more than their homes are valued at, according to J.P. Morgan Securities Inc.

As of December, 28% of option ARMs were delinquent or in foreclosure, according to LPS Applied Analytics, a data firm that analyzes mortgage performance. That compares with 23% in September. An additional 7% involve properties that have already been taken back by the lenders. By comparison, 6% of prime loans have problems.

Problems with subprime are still the worst. Just over half of subprime loans were delinquent, in foreclosure, or related to bank-owned properties as of December. The nearly $750 billion of option ARMs issued from 2004 to 2007 compares with roughly $1.9 trillion each of subprime and jumbo mortgages in that period.

Nearly 61% of option ARMs originated in 2007 will eventually default, according to a recent analysis by Goldman Sachs

, which assumed a further 10% decline in home prices. That compares with a 63% default rate for subprime loans originated in 2007. Goldman estimates more than half of all option ARMs outstanding will default.

In a recent conference call, Bank of America said it had added $750 million to its impaired portfolio reserves to offset higher-than-expected losses related to its acquisition of Countrywide Financial Corp. The company said the increase "was focused principally in the pay option ARM product." This week, Wells Fargo said $59.8 billion of its "Pick A Payment" option ARM mortgage portfolio was "credit impaired," including $24.3 billion in loans on which the company has taken a credit write-down.



> Mhhhhh, i wonder how much of this paper will end at the Bad Bank......



> Tippe mal das wir einen gewaltigen Teil aus den unten aufgeführten Bilanzpositionen demnächst in der Bad Bank wiederfinden werden.....



Why Meredith Whitney thinks a “bad bank” is a bad idea FT Alphaville





> Here comes a reminder on how "honest" you should take the estimates for taypayer losses when they come from the Fed, Treasury or 90% of politicians......

> Nur zur Erinnerung wie glaubhaft Aussagen zu möglichen Verlusten für den Steuerzahler sind die von Seiten der Notenbänker, Finanzminister oder von 90% der Politiker kommen verweise ich auf das Beispiel Fannie Mae und Freddie Mac......

Fan and Fred's Lunch Tab WSJ

It seems a lifetime ago, but it's only been six months since the Congressional Budget Office put a $25 billion price tag on the legislation to bail out Fannie Mae and Freddie Mac. At the time, then CBO Director Peter Orszag told Congress that there was a "probably better than 50%" chance that the government would never have to spend a dime to shore up the two government-sponsored mortgage giants.

A spokeswoman for Fannie promoter Barney Frank said then, "we especially like that there is less than a 50% chance that it will be used." The CBO had figured that there was a 5% chance that losses would reach the $100 billion cap on the credit line created by the July law. Now CBO's best guess is more than double that.

The bigger picture here is that politicians like Mr. Frank have been telling us for years that Fannie and Freddie's federal subsidy was a free lunch. We are now slowly, and painfully, learning the price of Mr. Frank's famous desire to "roll the dice" with Fan and Fred. Keep that in mind the next time you hear a politician propose a taxpayer guarantee. The only sure thing is that the taxpayers will pay.

A quarter-trillion dollars later, and rising.............

THAT ROSE, FANNIE MAE .......

Probably the ugliest & thorniest rose in the entire universe.....A good dose of humor is probably the only way to withstand the "Mother Of All Bailouts"...... I assume the next parody has something to do with a sinkhole... :-) More serious input ( with the exception of the MUST READ link at the end of this posting.... ) via Yves from Naked Capitalism Freddie, Fannie Notable Comments (Mainly Not Pretty) .

Anlässlich zur "Mutter aller Bailouts".... Ist wohl die dornigste Rose auf diesem Planeten...... :-) Mehr ernsthafte Analysen ( mit der Ausnahme weiter unten in diesem Posting... ) via Yves von Naked Capitalism Freddie, Fannie Notable Comments (Mainly Not Pretty)



Dank an Zeitenwende & Versusplus

I have to echo what Yves has to say / Kann hier Yves nur zustimmen.....

You also must read Paulson'sStatement on Freddie and Fannie with a Nearly Simultaneous Translation at Jesse's Cafe Americain. Hysterical and on target.

Update: Take A Load On Fannie

Hussman On Phony Mae "This makes Long Term Capital Management Look Like A Conservative Strategy"

If you can stand it i suggest to click through the Fannie Mae Q2 Confernce Call Presentation. Sobering stuff with a management that is still highlighting useless stuff like this one.....

Wenn Ihr die Nerven habt empfehle ich einen Blick durch die Slides der Fannie Mae Q2 Telefonkonferenz Präsentation zu werfen. Ein paar ganz üble Charts sowie ein Management das immer noch auf zu vollkommen nutzlosen Aussagen wie den folgenden beharrt.....

Core capital of $47.0 billion at end of 2008 Q2 is above both our statutory minimum capital requirement, a surplus of $14.3 billion, and the OFHEO-directed minimum capital requirement, a surplus of $9.4 billion.

Compare this one with the reality aka Hussman or Kevin Depew

Vergleicht diese Aussage mit der von Hussman oder Kevin Depew

This is another misleading statement. Technically, based on the Office of Federal Housing Enterprise Oversight (OFHEO) requirements, both companies have dequate capital cushions. But that's like jumping out of an airplane without a parachute and arguing on the way down over whether your shoes have the right government mandated soles. Yes, according to OFHEO guidelines, Fannie and Freddie have the right soles. But put in context, those shoes aren't going to be of much use when their feet hit the ground without a parachute

Hussman With regard to Fannie Mae's report, the most interesting figure wasn't the reported $2.3 billion loss, but rather the much larger deterioration in the reported fair value of Fannie's balance sheet. We can observe what's going on by comparing Table 32 of Fannie Mae's Q2 2008 10Q filing with the same table in Fannie Mae's Q1 2008 10Q filing.

As of June 30, 2008, the fair value of Fannie Mae's common equity (that is, the book value available to common shareholders) was -$5.39 billion, compared with a March 31 fair value of -$2.07 billion. What's notable here is that this deterioration (-$3.32 billion) was even larger than the -$2.30 billion loss that Fannie reported to investors, which was itself about four times higher than the loss analysts had estimated.

Note that balance sheet losses are excluded from earnings. Financial stocks tend to be reasonably valued when they trade at tangible book value, but simply put, Fannie Mae has no tangible book value. The common stock is now a call option.

Even if we include the fair value of preferred equity, we find that on a fair value basis, Fannie Mae is operating at a gross leverage multiple of 72.7 (total assets comprised primarily of mortgage loans, divided by shareholder equity). In other words, a slight 1.4% deterioration in the value of Fannie's book of assets will wipe out all of the remaining shareholder equity. This makes Long Term Capital Management look like a conservative strategy.

Fannie Bid to Preserve Capital Is Temporary WSJ
Postponing a problem is very different from solving one. Yet Fannie Mae is going to extraordinary lengths to preserve capital -- even trying to forestall big losses by giving essentially free money to delinquent borrowers.

This is a temporary fix that could leave investors with a bad surprise down the road.

In Friday's second-quarter results, Fannie said it made $127 million in loans that allow delinquent borrowers to get current on their mortgages. That prevents Fannie having to repurchase the loans from mortgage trusts at face value and take an immediate charge based on market prices.

In the second quarter, the average markdown for such repurchased loans was 47% and resulted in an overall charge of $380 million. Without the special loans to delinquent borrowers, Fannie might have been forced to buy back 17,901 loans. That could have meant an additional charge of as much as $1.5 billion, based on the losses Fannie took on the mortgages it did repurchase.

Superficially, that isn't a bad trade. Fannie avoids a big extra charge by issuing just $127 million of new loans. The trouble? The special loans have their own cost. Fannie is already carrying the $127 million on its books at just $4 million, meaning it wrote the loans down to about three cents on the dollar.

In its second-quarter filing, Fannie said it expects such special loans "to continue to reduce the number of delinquent loans that we otherwise would have purchased" throughout 2008.

That may preserve capital. But it is really just postponing a problem festering out of investors' sight.

> More comedy from Hank.....Paulson Interview: No Plans to Insert Money in Fannie and Freddie . I´ll bet that during the coming 6-8 weeks the Taxpayerwill be the only one buying the new equity....

> Hier gibt es weitere Aussagen die in 6-8 Wochen vollkommen von der Wirklichkeit eingeholt werden sein dürften......Paulson Interview: No Plans to Insert Money in Fannie and Freddie .

Joke Of The Day...."Fannie Mae and Freddie Mac Are Adequately Capitalized"

Kevin Depew has a good edition on Fraudie Mac & Phony Mae in his Five Things You Need to Know that is worth reading in total. Keep his following comment in mind when you hear the following quote"Fannie Mae and Freddie Mac are adequately capitalized."...... Unfortunatley almost everybody has used this phrase and it is a clear sign that Bernanke, Paulson & Co don´t care about their credibility and their institutions. Nothing really new. On the other hand they have probably no other choice than consistanly lying almost every time they open their mouth... One of my all time favourites is their "strong $ policy" It is working just fine for a long time goldbug :-) Others ( Wall Street Finest, Politicians ) that use this nonsense maybe really believe what they say. I don´t know what is worse....

Kevin Depew hat erneut eine gute Fraudie Mac und Phony Mae Edition in seinen Five Things You Need to Know zusammengestellt ( kompletter Link empfehlenswert ). Sein Kommentar zum folgenden Zitat "Fannie Mae and Freddie Mac are adequately capitalized." trifft den Nagel auf den Kopf. Dieser Satz ist in den letzten Tagen befehlsartig von jedem wiederholt worden der sich zu diesem Thema von offizieller Seite geäußert hat. Wenig verwunderlich auch das Bernanke und Paulson mehrmals diesen Schwachsinn wie in Trance heruntergebetet haben. Dies zeigt einmal mehr das denen die Glaubwürdigkeit Ihrer Personen und vor allem deren Institutionen nicht das schwarze unter dem Fingernagel wert zu sein scheint. Keine wirklich neue Erkenntnis.... Zu deren Verteidigung sei angefügt das die Welt und besonders die US Bürger die ungeschminkte Wahrheit wohl kaum ertragen könnten. Aber das jetzt fast jedes Mal wenn einer der Beiden den Mund aufmacht nur noch Peinlichkieten herauskommen ist schon krass..... Ich als Goldbug amüsiere und bedanke mich beinahe täglich zudem über die inwzischen legändere"strong $ policy" der Beiden...... Politiker die diesen Satz ebenfall in den Mund nehmen glauben evtl. tatsächlich daran. Ich weiß nicht was schlimmer ist......

"Fannie Mae and Freddie Mac are adequately capitalized."

This is another misleading statement. Technically, based on the Office of Federal Housing Enterprise Oversight (OFHEO) requirements, both companies have adequate capital cushions. But that's like jumping out of an airplane without a parachute and arguing on the way down over whether your shoes have the right government mandated soles. Yes, according to OFHEO guidelines, Fannie and Freddie have the right soles. But put in context, those shoes aren't going to be of much use when their feet hit the ground without a parachute

Have A Nice Weekend......

I´ll bet that Bernanke, Paulson & Co have to work overtime this weekend. I assume we will get an anouncement on the Fraudie Mac & Phony Mae bailout before the opening of the US Market on Monday........ Capitalism and free markets at its best....... UPDATE: Felix Salomon nails it Parsing Paulson: The Fannie and Freddie Bailout A must read! Yves from Naked Capitalism is ( as usual ) providing a very nice summary on the entire topic The Real Test of the Not-Yet-A-Plan Fannie & Freddie Operation . Another must read post from Tanta / Calculated Risk

Bernanke, Paulson & Co dürften an diesem Wochenende wohl nicht viel Schlaf bekommen..... Bin mir ziemlich sicher das wir hinsichtlich einer steuerfinanzierten Lösung der Probleme bei Fraudie Mac & Phony Mae noch bevor die US Börsen am Montag eröffnen hören werden. ..... Die USA sollten sich demnächst ne neue Flagge mit Hammer & Sichel besorgen..... UPDATE: Welch Überraschung.... Felix Salomon trifft in Parsing Paulson: The Fannie and Freddie Bailout den richtigen Ton und übersetzt was wirklich hinter den kaum zu ertragenen Phrasen von Paulson steckt. Pflichtlektüre! Zudem hat Yves von Naked Capitalism in The Real Test of the Not-Yet-A-Plan Fannie & Freddie Operation wie gewohnt wieder eine erstklassige Übersicht zum Thema Bailout. Noch ein extrem lesenswertes Posting von Tanta / Calculated Risk. Hier wird in der bisher besten mir bekannten Form die Rolle der beiden Pleitekandidaten während der Immoblase abgehandelt und beleuchtet.

Dank an Zeitenwende

Yves from Naked Capitalism has an excellent "rant" from Willem Buiter on this topic.

Yves von Naked Capitalism hat passend zum Thema einen erstklassigen "Rundumschlag" von Willem Buiter. Der komplette Link ist extrem lesenswert.

So I call on Secretary Paulson, Chairman Bernanke and Director Lockhart to drop the market-friendly fig-leaf. Be a socialist and proud of it. Come out of the red closet. The Soviet Union may have collapsed, but the cause of socialism is alive and well in the USA. Granted, the US version of socialism is imperfect thus far. The federal authorities have mainly intervened to socialise the losses in the financial sector while allowing the profits to continue to be drained off into selected private pockets

AMEN! Got Gold.... ?

Hat tip to Tim from The Mess That Greenspan Made

Earlier today, the "tonnes in the trust" for the SPDR Gold Shares ETF increased by an astonishing 46 tonnes, in what might be termed an "adverse reaction" to the many and varied government assurances that everything is hunky dory at mortgage giants Fannie Mae and Freddie Mac.

This dwarfs anything other than the second day of trading for the ETF back in November of 2004 which saw 50 tonnes added.

Quote Of The Day : Fannie Mae, Freddie Losses Make Them `Insolvent,' Poole

Poole does ist again. After "The Fed Wants To Create Inflation" he is speaking out what everybody with common sense is knowing for years...... There is a reason why they have been labaled not only from this blogger Fraudie Mac & Phony Mae ..... As Yves from Naked Capitalism is pointing out Poole has been a long time critic of the GSEs.

Der ehemalige Fed Mitglied Poole fängt an mir zu gefallen. Nachdem er in "The Fed Wants To Create Inflation" bereits Klartext gesprochen hat legt er nun erneut nach und spricht aus was jeder mit eine gesunden Menschenverstand seit Jahren wissen muß. Das schließt natürlich alle an der Wall Street arbeitenden "Experten" aus......Habe mir bei der Bezeichnung in meinen früheren Postings nicht zu Unrecht die Bezeichnung Fraudie Mac & Phony Mae benutzt...... Traurig das man anscheinend erst die Fed verlassen muß um die ungeschminkte Wahrheit sagen zu können. Yves von Naked Capitalism weist darauf hin das Poole schon seit geraumer Zeit einer der ärgsten Kritiker der sog. GSEs gewesen ist.

Fannie Mae, Freddie Losses Make Them `Insolvent,' Poole Says

``Congress ought to recognize that these firms are insolvent, that it is allowing these firms to continue to exist as bastions of privilege, financed by the taxpayer,'' Poole, 71, who left the Fed in March, said in an interview.

Can´t wait what he has to say next week.......

Bleibt zu hoffen das er seinen Rhythmus aufrecht erhält und sich nächste Woche erneut zu Wort meldet.....

Hat tip to Calculated Risk for this bubblevision clip on the ongoing slump in Fraudie & Phony....

Dank an Calculated Risk für diesen Clip des wohl schlechtestens Wirtschaftssenders weltweit der die ungläubigen Reaktionen auf den fortlaufenden Abverkauf von Fraudie & Phony zeigt.....

F.H.A. Faces $4.6 Billion in Losses

"Unexpected losses".......LOL!

"President Bush and leading Democrats in Congress are counting on the F.H.A., which is overseen by the Department of Housing and Urban Development, to help istressed borrowers refinance into stable, government-backed loans."

Got gold.....?

Yves from Naked Capitalsim has much more on this topic FHA Repudiates Housing Rescue Bill including this desperate comment to fend off the latest rescue packages from the FHA chief Brian Montgomery ( also hat tip to Housing Wire) .

Yves von Naked Capitalsim hat mehr deprimierende Details zu diesem verzweifelten Versuch der Politik das Unvermeindliche zu verhindern FHA Repudiates Housing Rescue Bill . Hier ein an Deutlichkeit nicht zu überbietender Hilfeschrei von FHA Boss Brian Montgomery ( Dank auch an Housing Wire) das die von der Politik geplanten Rettungsaktionen für den US Immobilienmarkt unweigerlich in ein Desaster führen werden ..... Unnötig zu erwähnen das letztendlich der Steuerzahler für diesen erneuten Irrsinn geradezustehen hat...... Unnötig ebenfalls zu betonen das sich die Politiker gerade in Wahlkampfzeiten am Ende sicher durchsetzen werden....

"Some of the proposed Congressional actions could actually weaken FHA and endanger the housing market by turning FHA into a less stable, less solvent, more bureaucratic entity.

There are some who want FHA to pick up all the potentially delinquent 2 million subprime loans.This is a worrisome idea.

FHA is designed to help stabilize the economy, operating within manageable, low-risk loans.It is not designed to become the federal lender of last resort, a mega-agency to subsidize bad loans."

He should have been so vocal a litlle bit earlier ( enjoy the rant from Mish )

Hier noch ein netter Rumumschlag von Mish

F.H.A. Faces $4.6 Billion in Losses NYT
WASHINGTON — The Federal Housing Administration expects to lose $4.6 billion because of unexpectedly high default rates on home loans, officials said Monday.

Brian D. Montgomery, the F.H.A. commissioner, attributed the unanticipated losses primarily to the agency’s seller-financed down payment mortgage program, which has suffered from high delinquency and foreclosure rates in recent years.

Housing officials said the agency was also hurt by poor performance in its traditional mortgage portfolio. Deteriorating economic conditions led some of its core clients — first-time buyers, minorities and lower-income owners — to default, they said.

The projected loss is the highest in the home loan program since 2004, and officials said the F.H.A. had to withdraw $4.6 billion from its $21 billion capital reserve fund in May to cover the costs. They said the agency, which is self-sustaining, would not need appropriations from Congress to remain solvent.

But Mr. Montgomery warned that the F.H.A. would have to renew its efforts to end the seller-financed down payment program, which accounted for 35 percent of its loans in 2007.

He said the mortgages had foreclosure rates three times those of traditional loans and would push the F.H.A. to the brink of insolvency.

“Let me repeat: F.H.A. is solvent,” Mr. Montgomery said on Monday in a speech at the National Press Club. “However, no insurance company can sustain that amount of additional costs year after year and still survive. Unless we take action to mitigate these losses, F.H.A. will soon either have to shut down or rely on appropriations to operate.”

F.H.A.’s projected loss, more than four times the shortfall attributed to the home program last year, raised concerns about the agency’s ability to lead the national effort to rescue homeowners facing foreclosure.

President Bush and leading Democrats in Congress are counting on the F.H.A., which is overseen by the Department of Housing and Urban Development, to help distressed borrowers refinance into stable, government-backed loans.

Officials say the agency will help 500,000 people refinance by the end of the year, but a vast majority of those have made their payments on time.

Howard Glaser, a mortgage industry consultant who served as HUD general counsel in the Clinton administration, sees the anticipated loss as a concern. “Congress is relying on F.H.A. to help stabilize the mortgage market, but it’s not clear that F.H.A. is as strong as it could be,” he said.

Mr. Montgomery said the agency planned to reopen the comment period on a proposed rule to the Federal Register that would ban the program. But the F.H.A. has tried to eliminate seller-financed down payment loans for years, and it remains unclear whether it will be successful now.

Under the program, a home seller arranges to cover the buyer’s down payment, using financial help from a nonprofit company, but typically adds that sum or more to the price of the house. The deal has been particularly attractive to financially struggling buyers and to owners in depressed markets, according to Congressional officials.

Critics say the practice puts overpriced houses in the hands of poor and minority homeowners who ultimately cannot cover the mortgage. In recent years, the Government Accountability Office and the Internal Revenue Service have both raised concerns about the program.

But with the subprime market collapsed and mortgage companies tightening lending criteria, seller down payment loans have become increasingly appealing both to sellers in slumping housing markets and to lower-income homebuyers unable to get conventional mortgages.

The program, which accounted for less than 2 percent of F.H.A.-insured loans in 2000, now accounts for more than a third of the agency’s portfolio. Housing officials said that 60 percent of F.H.A.’s anticipated loss was directly attributable to the seller-financed down payment program.

Supporters of the loans, who include some powerful members of Congress, counter that the program provides much-needed assistance to low-income and minority families who would otherwise be unable to buy homes.

Representative Barney Frank, the Massachusetts Democrat who is chairman of the House Financial Services Committee, remains opposed to any F.H.A. rule that would eliminate the program, a spokesman said on Monday. Mr. Frank has said he would like to reform the program without killing it.

Freddie aka Fraudie Mac / Market Sentiment

It´s always the reaction to the news that is important....And sending the stock higher almost 10 percent on the following news is a clear sign that the complacency has taken over again....A look at the VIX is confirming this view. On top of this Doug Kasshas observed this: "Investors Intelligence bulls are back up to 46, as bears drop to 29.9 -- at respective highs and lows since January". I think this headline via FT Alphaville sums it up nicely Not as bad as feared’ is the new code for ‘buy, buy, buy’ Here are More Reasuring Facts On Phony Mae aka Fannie Mae

Eine der wichtigsten Regeln für Anleger und Trader ist jeweils zu beachten wie der Markt auf bestimmte Nachrichten reagiert. Und wenn man nach den folgenden Neuigkeiten die Aktie fast 10 % nach oben katapultiert ist das für mich ein klares Zeichen das wir uns einem Level nähern der doch langsam wieder bedenklich wird.....Der sich rapide beruhigende VIX unterstreicht diesen Trend. Doug Kass hat diese Statistik die wunderbar zum Gesamtbild passt. "Investors Intelligence bulls are back up to 46, as bears drop to 29.9 -- at respective highs and lows since January" . Diese Schlagzeile via FT Alphaville fasst es ziemlich gut zusammen Not as bad as feared’ is the new code for ‘buy, buy, buy’ Hier gibt es mehr More Reasuring Facts On Phony Mae aka Fannie Mae

Parsing Freddie's Profit Report WSJ
Freddie Mac's earnings report more clearly than ever defined the battle lines between the company's shareholders and the government, which sees it as one of its main tools to bolster the housing market.

The report the mortgage giant issued Wednesday shows that the company's cushion for losses fell sharply in the quarter, giving it one of the weakest balance sheets in the financial sector and leaving it more vulnerable to future hits from the housing crunch.

This weakening in Freddie Mac's financial footing will unnerve politicians keen to see Freddie buy and guarantee even more mortgages to alleviate the credit crunch.

And investors sniffing around Freddie's shares may also want to pay heed to the enervated balance sheet. That is because the company likely will have to sell a large amount of new stock, diluting existing shareholders, to strengthen its balance sheet.

Freddie said Wednesday that it planned to sell $5.5 billion of common and preferred stock. "I think they'll continue to raise capital," said Paul Miller, an analyst at FBR Capital Markets.

The company's weakened state was lost on investors who rejoiced that the loss was smaller than expected and drove its shares up 9%. But the smaller-than-expected loss was primarily the result of accounting changes made in the quarter that allowed the company to book certain gains in earnings and exclude certain losses.

Freddie reclassified $90 billion in securities, boosting profit by about $1 billion compared with the fourth quarter.

Hat tip Calculated Risk

Analyst: There is a headline out there that you have level 3 assets of $157 billion. I was just wondering is that true and is that related at all to the markups of the 1.2 billion gain?

Freddie Mac: No, it is not Paul. We made a determination in the first quarter that given how widely the pricing we were getting on the abs portfolio [varied] that it no longer made sense to leave that into level two. So we essentially moved the entire abs portfolio into level three. We were still using the mean pricing that we were getting from the dealers. So we’re not using a model price. That is all that is. It has nothing to do with the trading portfolio

Another change -- related to its mortgage guarantees -- reduced a potential hit to profit by about $1 billion compared with the fourth quarter. A maneuver that delays taking credit losses also allowed the company to avoid losses in the quarter.

Excluding these and some other accounting changes, Freddie's modest $151 million loss would have been a more worrisome $2 billion.

More insights via Calculated Risk On Freddie Mac Accounting Change

One way to cut through the earnings noise is to go to the balance sheet and zero in on its leverage -- the amount of shareholders' equity Freddie has supporting its $803 billion of assets, which are the loans it has retained.

In the first quarter, Freddie's assets exceeded its $16 billion of shareholders' equity -- its leverage ratio -- by 50.2 times. Fannie's first-quarter leverage ratio was 21.7 times, while the first-quarter average for the 20 largest U.S. lenders was just under 12 times, according to data from SNL Financial.

A Freddie spokesman declined to comment on its leverage specifically. And to be fair to Freddie, some of the market losses that are driving down Freddie's equity may one day be recovered. For instance, equity plunged to $16 billion from $26.7 billion in the fourth quarter, in part because of unrealized losses on securities backed by subprime mortgages.

But if Freddie were a regular bank, its regulator wouldn't let leverage get anywhere close to 50 times. At a nosebleed level like that, the regulator would push Freddie to keep raising capital, even if some of its losses in equity might be fleeting.

Shareholders could sputter about the continued dilution, but the government won't be very sympathetic.

More Reasuring Facts On Phony Mae aka Fannie Mae

This is an update on yesterdays post Reasuring Phony Mae & Fraudie Mac Facts........ The stock was under pressure premarket ( down 15 percent ) and closed higher with almost 9 percent. No wonder when you read the "bullish" points the WSJ is making...... Got gold......? More via Minyanville Five Things You Need to Know: Fannie Mae Inadvertently Predicts Housing Bottom & Barry Ritholtz Fannie Mae is Fantastic !

Das ist ein Folgepost zum dem gestrigen Eintrag Reasuring Phony Mae & Fraudie Mac Facts........ Vorbörslich war die Aktie start unter Druck und notierte bis zu 15 % schwächer. Geschlossen hat Phony Mae 9% höher. Muß wohl an den bullishen Fakten die das WSJ zusammengetragen hat liegen..... Got Gold....? Hier teilweise substanzielles von der FAZ Riesige Verluste können Fannie-Mae-Aktie nicht dauerhaft belasten sowie substanzielles via Minyanville Five Things You Need to Know: Fannie Mae Inadvertently Predicts Housing Bottom sowie Barry Ritholtz Fannie Mae is Fantastic !

Will $6 Billion Do for Fannie? WSJ
That is the amount of new money the mortgage giant said Tuesday that it would raise through the sale of common and preferred stock. But Fannie Mae could need even more capital if it really wants to shore up its balance sheet while also backstopping the national housing market.

How much more depends on an investor's view of the best way to measure the firm's net worth, as well as the amount of capital it should put aside against its burgeoning mortgage book. Bearish outlooks on these counts lead to scenarios where Fannie needs to raise anywhere from $5 billion to about $15 billion in additional funds.

Underpinning those pessimistic outlooks are the considerable headwinds that Fannie continues to face. The company posted a $2.2 billion first-quarter loss, for its third consecutive quarter in the red. The government-sponsored provider of funds for home mortgages expects national housing prices to fall 7% to 9% this year, while its exposure to hard-hit areas such as California and Florida could cause it even greater pain.

Fannie may soon have to book some big, unrealized losses it has been sitting on, further reducing its book value, or net worth.

Especially alarming: Based on market values for assets it holds, Fannie's net worth attributable to common stockholders would have been a negative $2 billion at the end of March.

For its part, Fannie doesn't see any need to raise more than $6 billion in capital. Chief Executive Daniel Mudd said on a conference call that the new funds will protect Fannie's balance sheet against future losses, allow it to expand its business and enable it to act as a bulwark for the housing market nationwide.

Mr. Mudd told investors that -- including the $6 billion in new capital, a 29% dividend cut and regulatory capital relief -- Fannie will have $48 billion in capital. That, he added, is $17 billion more than the company's federal regulator said it needs.

"We will feast off this book of business we're putting on for many years to come," Mr. Mudd said. Fannie's stock rose $2.52, or 8.9%, to $30.81 at 4 p.m. in New York Stock Exchange composite trading.

Some investors even felt Fannie didn't need to raise any new money. But that view is based on the idea that market-value losses shown by Fannie are fleeting.

Bears don't buy that, especially given the unprecedented scope of the housing crisis. They say it is a mistake to look at Fannie's regulatory capital number, which excludes large unrealized losses.

These investors argue that Fannie's market-value balance sheet gives a clearer picture. At the end of March, this market-value view showed the firm with total net worth of $12.2 billion, a bruising $23.6 billion decline from $35.8 billion at the end of 2007.

This figure comprised $14 billion in net worth attributable to preferred stock holders, while that attributable to common holders was negative $2 billion.

That $12.2 billion is the effective balance-sheet cushion against future losses. But it is equivalent to only 1.4% of Fannie's $866.7 billion in assets, measured using market values.

Not all the market-value losses will come to pass, of course. But some likely will. Fannie, for instance, disclosed that $16.9 billion of the $23.6 billion decline in market-value net worth came from increasing the value of a liability that represents future payouts on mortgage guarantees.

The increase in this guarantee obligation reflects, in part, new, higher estimates of credit losses. If these credit losses were to occur, they would show up on Fannie's books as cash payouts and realized losses.

Fannie may face pressure on earnings and its net worth in other areas. It disclosed that at the end of March it had $9.2 billion in unrealized losses on securities that haven't so far been reflected in earnings. Of these, $5.4 billion are more than a year old.

In addition, Fannie has so far balked at creating a special reserve against any portion of its $17.8 billion in deferred tax assets. The company can use those only to offset profit. As its loss-making period stretches, arguments could grow louder that Fannie needs to reserve against part of this asset. Doing so would result in another charge against profit that would hit net worth.

Those kind of charges could leave Fannie's $6 billion cushion looking awfully thin.

Reasuring Phony Mae & Fraudie Mac Facts.......

Schould be an interesting call today........ Got gold? UPDATE: Stock under pressure premarket......... No wonder when you read through the Q1 Investor Summary Fannie Mae ( especially the delinquency rates starting page 22 ). Now up over 5 percent!

Sind das nicht beruhigfende Daten und Fakten zu den wohl wichtigsten Finanzinstituten weltweit...... Wird sicher eine interessante Telefonkonferenz........Got Gold? UPDATE: Aktie vorbörslich stark unter Druck. ......Sollte bei Durchsicht der folgenden Präsentation Q1 Investor Summary Fannie Mae nicht weiter verwundern. Lege Euch besonders die Charts zu den notleidenden Krediten ab Seite 22 ans Herz. Inzwischen über 5% im Plus!

Doubts Raised on Big Backers of Mortgages NYT
Fannie Mae and Freddie Mac now overwhelmingly dominate it, handling more than 80 percent of all mortgages bought by investors in the first quarter of this year. That is more than double their market share in 2006.

But some financial experts worry that the companies are dangerously close to the edge, especially if home prices go through another steep decline. Their combined cushion of $83 billion — the capital that their regulator requires them to hold — underpins a colossal $5 trillion in debt and other financial commitments.

The companies, which were created by Congress but are owned by investors, suffered more than $9 billion in mortgage-related losses last year, and analysts expect those losses to grow this year. Fannie Mae is to release its latest financial results on Tuesday and Freddie Mac is to report earnings next week.

bigger/größer

The companies are sitting on as much as $19 billion in additional losses that they have not yet fully acknowledged, analysts say. If either company stumbled, the mortgage business could lose its only lubricant, potentially causing the housing market to plummet and the credit markets to freeze up completely.

By the end of last year, the companies had guaranteed or invested in $717 billion of subprime and Alt-A loans, up from almost none in 2000.

Last year, in return for buying billions of dollars of subprime mortgages to help stabilize the market, executives won the right to expand their investment portfolios. In March, the companies agreed to raise more capital within the year. In exchange, they received an additional $200 billion in purchasing power.

UPDATE:

I think you can add another $ 200 bilion..... Party on.....

Nach diesen Meldungen dürfte wohl noch mal eine ähnliche Summe hinzukommen.... Die Party geht weiter.....

Marketwatch Fannie Mae's federal regulator said on Tuesday it will reduce the company's capital-surplus requirement to 15% from 20% when Fannie Mae completes a new capital-raising plan. Fannie said Tuesday it is planning to raise $6 billion in new capital. The mortgage-finance giant reported a first-quarter loss of $2.2 billion on Monday, or $2.57 a share, citing credit-related expenses

> On top of this Fannie is hinting that another 5 percentage point reduction to 10 will be in place in September 2008 ( see end of page 1 Press Release!)

> Darüberhinaus wird angedeuted das eine weitere Reduzierung um 5 Punkte auf dann 10% wohl Ende September kommen wird ( siehe Ende Seite 1 Press Release )

“We’ve taken tremendous risks by loosening these companies’ purse strings,” said Senator Mel Martinez, Republican of Florida and a former secretary of housing and urban development. “They could cause an economywide meltdown if they got into real trouble and leave the public on the hook for billions.”

> When watching this tiny spread it should be clear that the market is already assuming that there will the biggest bailout ever....

> Beim Betrachten dieser lächerlichen Risikoaufschlägen sollte jedem klar sein das hier der gigantischte Bailout der Geschichte bereits als gegeben hingenommen wird. Leider wohl mal wieder zurecht.....

Last month, the companies promised to pump money into the more expensive reaches of the housing market. In return, Congress temporarily raised the cap on the size of the mortgages they can buy to almost $730,000 from $417,000

> Here is more on Phony & Freddie from Contrary Investor

Again, please remember that the important numbers to focus upon are the twelve month moving average amounts. These are the numbers that are really showing us trend and potentially important trend change from a historical perspective. In fact, although it's just our opinion, we believe what you'll see below is not being given enough attention in financial market circles these days. First up is foreign purchases of US government agency securities. In the past, what has attracted foreign interest, at least we believe so, has been the yield spread differential between government agency paper and Treasuries. You can clearly see that since the summer of last year, foreign community purchasing of US government agency paper has cooled down meaningfully. The last time we saw this type of a drop off was when it became known that Freddie, and then Fannie a short while later, were no longer able to file audited financial statements

Remember, these are numbers through February. What had not yet transpired when these numbers were reported was the revelation of increased lending limits for Fannie and Freddie in conventional mortgage lending from $417K to $729K. Moreover, the OFHEO had also not yet allowed lowered capital requirements for these two mortgage paper behemoths, further allowing them to mushroom their balance sheets relative to total capital should they choose to do so in the future (which they will choose to do so - count on it). The question becomes, what will foreign community reaction to these two news items be come the March and April numbers for foreign purchases of US agency paper? Implicit with the hike in nominal dollar lending limits and the allowance of balance sheet growth on what will be a defacto smaller capital base is increased financial risk. You already know we'll be sure to let you know foreign reaction vis-à-vis forward purchasing of agency paper. The bottom line being? The answer will be a matter of confidence. And it sure as heck appears clear that confidence in US financial paper has already become a very meaningful issue for the foreign community really since last summer.

As you'll see below, to suggest that the foreign community has been an important support to cost of capital at the government agency level, and ultimately the cost of mortgage debt in the US over time, is a wild understatement.

> The US should be very fortunate that they have found enough "dump" money to accumulate these kind of secirities..... CHAPEAU ( no kidding )!

> Die US können sich in der Tat wirklich glücklich schätzen das es Ihnen gelungen ist soviel ausländischen Kapital in solch Papiere zu lotsen. Ziehe aufrichtig meinen Hut vor solch guter PR!

Freddie Mac's Accounting Evokes Shades of Enron: Jonathan Weil

It´s no surprise some call them "Phony Mae and Fraudie Mac".... Just in time Fannie is also out with some news. Fannie Mae Cutting Dividend 30 Percent, Selling $7 Billion in Preferred Stock to Raise Capital

Sie werden nicht umsonst auch "Phony Mae and Fraudie Mac"genannt....... Passend hierzu ist auch Fannie mit einer Meldung draussenFannie Mae Cutting Dividend 30 Percent, Selling $7 Billion in Preferred Stock to Raise Capital

Dec. 5 (Bloomberg ) -- You have to wonder if a company is playing games when its earnings hinge on predictions no mere mortal is capable of making. That's one of Enron Corp.'s great lessons. And it's one that Freddie Mac investors might heed now.

Before it collapsed in 2001, Enron recorded large profits by estimating the values of its future cash flows from energy contracts that extended 20 years or longer. It then booked those amounts as current earnings. Even if Enron's executives had been acting in good faith, which they weren't, the forecasts they made weren't humanly possible.

Freddie's results depend on similar predictions, with a twist. The Mclean, Virginia-based company is using far-out forecasts of future cash flows to avoid recognizing large losses in its net income and capital. To believe Freddie's financial statements, you must believe the government-sponsored mortgage financier can make prognostications about its cash flows and debt issuances as long as 26 years from now.

Here's how the accounting works. Freddie's Sept. 30 balance sheet shows $4.3 billion of pent-up losses on derivatives called cash-flow hedges. Companies use these side bets to guard against interest-rate fluctuations on, for example, variable-rate debt.

Changes in the hedges' values don't hit net income immediately. Instead, they go into a line in shareholder equity called accumulated other comprehensive income, or AOCI. From there, they are released gradually into net income as payments come due.

Doesn't Count
These losses also don't count in the primary gauge the government uses to measure Freddie's capital, the financial cushion that helps any company absorb losses. Had Freddie counted them in net income, it would have fallen $3.7 billion short of its minimum capital requirement at the end of the third quarter.

Freddie says it has closed out almost all its cash-flow hedge positions, meaning the losses are now fixed. It says about 70 percent of its AOCI will be released into earnings over the next five years. The rest will take longer.

So what's getting hedged? Many of the hedged items don't exist yet. That's because they are ``forecasted transactions,'' primarily future issues of debt. The company says it has hedged the cash-flow risks on such deals as far out as 2033.

Under the accounting rules for derivatives, a future deal must be ``probable'' to qualify as a hedged transaction. So must the deal's terms, such as size and timing. This is where the forecasts get tricky.

Think Back
Consider how hard it would have been for a company in 1981 to envision and hedge its cash-flow risks on a debt sale it thought back then that it would make in 2007.

``Who could have predicted the Internet being where it is today?'' Ketz says. ``Who could predict that China would be the economic power that it is? Even in the U.S., the decline of, say, General Motors -- I don't think anyone would have predicted that in 1981. These are structural changes that affect the society and economy, and they can affect the cash flows that occur.''

Predictions even a few years out are tough. Will the next president be a Democrat friendly to Freddie and Fannie Mae, or a Republican who's not? How much more will home prices fall in the next year? Where will interest rates be? And wouldn't these developments affect Freddie's business and plans?

Consider the History
A Freddie spokeswoman, Sharon McHale, says the company knows its forecasted transactions are probable because it ``has a history of issuing significant amounts of debt instruments, well in excess of amounts hedged.'' The mortgages and mortgage securities it purchases stretch over 15 to 30 years, she notes, while the longest maturity for Freddie's debt is 10 years. Therefore, ``we know there is a need for debt issuances in the future to fund existing and future mortgage securities that have not fully prepaid prior to their stated maturity.''

Still, knowing the need will exist isn't the same as knowing what the terms and risks will be.

Judging by Freddie's $34.6 billion of so-called core capital at Sept. 30, which was about $600 million above the government-set minimum, Freddie already was adequately capitalized. And by keeping its $4.3 billion of losses in the AOCI holding tank, Freddie is signaling that a like amount of benefits will materialize in years to come.

Nonetheless, after posting a $2 billion net loss for the third quarter, Freddie last week had to raise $6 billion through a preferred-stock offering and cut its dividend by half to shore up its dwindling capital. That undercuts the notion that its cash-flow hedges are working properly. If they were, then Freddie should be getting around $4.3 billion of gains over the next 26 years. So there would be no need for a capital infusion.

Yet there was such a need. And until just recently, Freddie didn't see it coming. The lesson for investors: Freddie's crystal ball is no better than yours.

> Got gold......?