The Lack of Analysis in the Public DomainThe discussions about the future of Fannie Mae ( FNM) and Freddie Mac ( FRE) are taking place in a vacuum, where there are no decent public analyses of the government's contingent liabilities with the two government sponsored enterprises. The main goal of this series will be to remedy that oversight. I write this series in the face of genuine press and public surprise at the relatively good results of Freddie Mac. I do not mean to sound boastful, but I privately predicted those results quite accurately. This series will explain how I got to that prediction -- and where Fannie and Freddie losses go from here.*
Losses Are Not From Traditional BusinessFannie and Freddie traditionally insure qualifying mortgages. These are mortgages with:
- loan-to-value ratios of less than 80% (or with supplementary mortgage insurance for higher loan-to-value ratios).
- principal amounts owing lower than the qualifying mortgage limit (which used to be below $300,000 but has been increased several times during this crisis).
- income, employment and assets verified.