Fannie, Freddie Media Panic Overblown

Fannie Mae (FNM Quote) and Freddie Mac (FRE Quote) are dominant players the bond market. Not only are they the biggest non-Treasury issuers of straight-debt securities, mortgage-backed bonds guaranteed by the two giants represent over 30% of the total taxable bond market. Therefore, the problems at the GSEs probably touch just about every investor directly in a way few other companies would.

While delinquencies on their guarantee portfolio remain relatively small (0.81% for Freddie Mac and 1.22% for Fannie Mae), the fact is that both companies employ tremendous leverage, and therefore, losses even mildly above historic norms are likely to put huge pressure on the company's equity.

In addition, Freddie Mac has yet to complete the $5.5 billion capital raise they promised in May, and given market conditions, this will be all but impossible without government intervention. So I'm not here to challenge the plunging share price of either Fannie Mae or Freddie Mac.

But there are three really silly things being reported in the media right now that need clearing up. ...