The Mirage

Faced with growing numbers of homeowners unable to make mortgage payments,

Fannie decided to fund loans to borrowers that were instant losers with their HomeSaver Advance plan.

The point was to buy time. Even though those loans resulted in a $453 million loss, they helped keep troubled homeowners from defaulting.

That meant Fannie for now didn’t have to make good on loan guarantees that may have cost it as much as $2.4 billion.

But how much are these piggyback 2nd TD handouts really worth? Fannie funded $462 million in such loans during 2008.

The company tells investors in notes to its financial statements, though, what it thinks the loans are actually worth.

Based on market prices, Fannie said the loans had a value of just $8 million.

That’s right, the loans, which are in many cases just months old, are already worth only 1.7 cents on the dollar.

Fannie would face a loss of about $2.4 billion if it had to repurchase the 71,000 loans covered by the HomeSaver program.

Not to mention that having to process 71,000 additional foreclosures or the release of the 66% of foreclosures...

which the banks are keeping off the market might further depress our completely false real estate values.

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