Fannie's Hole Gets Bigger
Additional serious accounting problems at Fannie Mae recently discovered by federal regulators could mean as much as $2.8 billion in further losses. The anticipated restatement of some $9 billion in earnings could climb to nearly $12 billion if the company has to recognize the full $2.8 billion in additional estimated losses.
The WSJ cited a disclosure in Fannie Mae's report for last year's second quarter showing $2.76 billion in losses on a type of derivatives, financial instruments it uses to hedge against interest-rate swings. The derivatives in question are called mortgage commitments, undertakings by the company to buy mortgage loans and mortgages bundled into securities from banks and other lenders. Losses on such commitments can occur when interest rates rise after the company has agreed to buy the loans at a previously agreed rate. Some or all of the $2.76 billion in losses may have to be counted against the company's second-quarter earnings and the reserve capital it is required to hold as security against risk.
Questions to ponder: If FNMA lost $2.76 Billion in one quarter, how much exposure to Mortgage Committments is currently in place within the market? What will rising interest rates do to those companies with such exposure?
See: More Accounting Troubles at FNMA
http://www.miami.com/mld/miamiherald/ business/national/11043258.htm
See: More Fannie Trouble
http://naybob.blogspot.com/2005/02/more-fannie-trouble.html
The WSJ cited a disclosure in Fannie Mae's report for last year's second quarter showing $2.76 billion in losses on a type of derivatives, financial instruments it uses to hedge against interest-rate swings. The derivatives in question are called mortgage commitments, undertakings by the company to buy mortgage loans and mortgages bundled into securities from banks and other lenders. Losses on such commitments can occur when interest rates rise after the company has agreed to buy the loans at a previously agreed rate. Some or all of the $2.76 billion in losses may have to be counted against the company's second-quarter earnings and the reserve capital it is required to hold as security against risk.
Questions to ponder: If FNMA lost $2.76 Billion in one quarter, how much exposure to Mortgage Committments is currently in place within the market? What will rising interest rates do to those companies with such exposure?
See: More Accounting Troubles at FNMA
http://www.miami.com/mld/miamiherald/ business/national/11043258.htm
See: More Fannie Trouble
http://naybob.blogspot.com/2005/02/more-fannie-trouble.html
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