Zack's On Fannie Magic
From Zack's: The shares of the two giant Government Sponsored Enterprises (GSEs), Fannie Mae and Freddie Mac have been in an absolute freefall over the past week.
We have long warned that the attempts to put the burden of the mortgage crisis on the GSEs was misguided and would eventually put the two of them in peril.
If mark-to-market accounting is used, it seems very clear that they are very undercapitalized.
Even though the underwriting standards at the GSEs were generally better than for the private label mortgage backed securities that have already blown up, in retrospect they have proved to be too loose.
In part this was because FNM and FRE relied on private mortgage insurance from firms like PMI Group and MGIC which now appear to be on the brink of insolvency themselves.
The Nattering One muses... how much RELIANCE on PMI?
From FNMA Q108 financial highlights page 38:
Counterparty Exposure - Mortgage Insurer's (in millions)
Mortgage Guaranty Insurance Corporation $ 26,639
PMI Mortgage Insurance Co. $ 16,916
Genworth Mortgage Insurance $ 16,487
United Guaranty Residential Insurance $ 15,730
Radian Guaranty, Inc $ 14,893
Republic Mortgage Insurance $ 12,946
Triad Guaranty Insurance $ 5,874
CMG Mortgage Insurance Company $ 1,901
Or $111 billion of primary and pool coverage.
Just a quick look at MGIC Q1 Financial Press Release from 04/17; page 4:
insurance in force $221.0 billion
assets $ 8.8 billion
cash $ 1.0 billion
shareholder equity $ 3.0 billion
at a book value of $23.90 per share with 125 million shares outstanding!!!
Todays MGIC share price $4.04... so shareholder equity is actually $500 million.
MGIC is backing $221 billion in loans; of which $27 billion in FNMA loans, with $1 billion cash and $7.5 billion in total assets on hand?
We have nattered many a time about the potential failure of a private mortgage insurer and
what would happen to the lenders, without this profitable safety net for their REO's.
The morons in Congress, the Fed and Treasury are about to get the biggest and rudest surprise in modern financial history.
Anyone who thinks this is near bottom or over, is delusional. We gently repeat one of our mantras: this is not going to end pretty.
We have long warned that the attempts to put the burden of the mortgage crisis on the GSEs was misguided and would eventually put the two of them in peril.
If mark-to-market accounting is used, it seems very clear that they are very undercapitalized.
Even though the underwriting standards at the GSEs were generally better than for the private label mortgage backed securities that have already blown up, in retrospect they have proved to be too loose.
In part this was because FNM and FRE relied on private mortgage insurance from firms like PMI Group and MGIC which now appear to be on the brink of insolvency themselves.
The Nattering One muses... how much RELIANCE on PMI?
From FNMA Q108 financial highlights page 38:
Counterparty Exposure - Mortgage Insurer's (in millions)
Mortgage Guaranty Insurance Corporation $ 26,639
PMI Mortgage Insurance Co. $ 16,916
Genworth Mortgage Insurance $ 16,487
United Guaranty Residential Insurance $ 15,730
Radian Guaranty, Inc $ 14,893
Republic Mortgage Insurance $ 12,946
Triad Guaranty Insurance $ 5,874
CMG Mortgage Insurance Company $ 1,901
Or $111 billion of primary and pool coverage.
Just a quick look at MGIC Q1 Financial Press Release from 04/17; page 4:
insurance in force $221.0 billion
assets $ 8.8 billion
cash $ 1.0 billion
shareholder equity $ 3.0 billion
at a book value of $23.90 per share with 125 million shares outstanding!!!
Todays MGIC share price $4.04... so shareholder equity is actually $500 million.
MGIC is backing $221 billion in loans; of which $27 billion in FNMA loans, with $1 billion cash and $7.5 billion in total assets on hand?
We have nattered many a time about the potential failure of a private mortgage insurer and
what would happen to the lenders, without this profitable safety net for their REO's.
The morons in Congress, the Fed and Treasury are about to get the biggest and rudest surprise in modern financial history.
Anyone who thinks this is near bottom or over, is delusional. We gently repeat one of our mantras: this is not going to end pretty.
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