Solvency Issues for FNMA, FHLMC & Orange County
Sagging Fannie & Sinking Freddie...
Last week in order to raise operating capital, FHLMC Freddie Mac sold $6 billion in preferred stock and cut its divident by 50%.
Last night we reported... Fannie Mae, the largest source of money for U.S. home loans, cut its dividend 30% and said it will sell $7 billion of preferred stock to bolster capital.
Fannie Mae said last month it had a capital cushion of $2.3 billion after reporting a quarterly loss of $1.4 billion.
But a closer review of the 10Q's for both FHLMC & FNMA reveal, they are both under capitalized, and can't bail water fast enough to prevent further sinking.
With the GSE's, which are the main and last source of mortgage funding, potentially reducing the number of loans funded,
the buyer pool for real estate could shrink substantially, driving prices down even further into the abyss and truly sinking the real estate bubble named Titanic.
Bloomberg has more commentary on Fannie's cuts. Jonathan Weil comments on how FHLMC Freddie Mac's Accounting Evokes Shades Of Enron.
It's Deja Vu, All Over Again...
Orange County bankrupted in 1994 by bad bets on interest rates, bought SIV structured investment vehicles similar to those that caused a run on funds invested by local governments in Florida.
Last week in order to raise operating capital, FHLMC Freddie Mac sold $6 billion in preferred stock and cut its divident by 50%.
Last night we reported... Fannie Mae, the largest source of money for U.S. home loans, cut its dividend 30% and said it will sell $7 billion of preferred stock to bolster capital.
Fannie Mae said last month it had a capital cushion of $2.3 billion after reporting a quarterly loss of $1.4 billion.
But a closer review of the 10Q's for both FHLMC & FNMA reveal, they are both under capitalized, and can't bail water fast enough to prevent further sinking.
With the GSE's, which are the main and last source of mortgage funding, potentially reducing the number of loans funded,
the buyer pool for real estate could shrink substantially, driving prices down even further into the abyss and truly sinking the real estate bubble named Titanic.
Bloomberg has more commentary on Fannie's cuts. Jonathan Weil comments on how FHLMC Freddie Mac's Accounting Evokes Shades Of Enron.
Freddie's Sept. 30 balance sheet shows $4.3 billion of pent-up losses on derivatives called cash-flow hedges..
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.
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.
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
It's Deja Vu, All Over Again...
Orange County bankrupted in 1994 by bad bets on interest rates, bought SIV structured investment vehicles similar to those that caused a run on funds invested by local governments in Florida.
In all of its funds, the county holds a total of $837 million of SIV debt, including $152 million in its $3.5 billion of money-market funds..
Twenty percent, or $460 million, of the county's $2.3 billion Extended Fund is invested in so-called SIVs that may face credit-rating cuts
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