Fannie Mae could be hit hard by housing bust

keine frage. der investor berg redet heir ganz klar sein buch, heißt er hat ein interesse daran das fnm unter druck kommt. finde aber die aufgeführten punkte erwähnenswert und allen sollte klar sein wenn fnm in den strudel von kreditschieflagen im zusammenhang mit dem bubble kommt dann ist das die "mutter aller schieflagen"
http://immobilienblasen.blogspot.com/2006/08/faennie-mae-fnm.html
http://immobilienblasen.blogspot.com/2006/08/fnm-und-der-staat.html
http://immobilienblasen.blogspot.com/2006/08/andere-sind-gleicher-fannie-mae.html



Mortgage giant could lose $29 bln, long-term bear argues in investor letter

The worst of Fannie Mae's regulatory troubles may be behind it, but one longtime skeptic of the mortgage giant thinks it could face bigger problems from trouble in the U.S. housing market.

Gilchrist Berg, founder of $2 billion Jacksonville, Fla.-based hedge-fund firm Water Street Capital, said in a recent letter to investors that Fannie Mae could lose $22 billion to $29 billion if, as he expects, the housing bubble bursts and foreclosures increase

We are not sure the folks running the show fully embrace the risk of declining house prices," Berg wrote in the letter, a copy of which was obtained by MarketWatch. If the housing market continues to decline "a major portion of Fannie Mae's value could be wiped out." He declined to comment for this story.

Fannie Mae spokesman Alfred King said the company protects itself from housing-market volatility in many ways, including maintaining a geographically diverse book of business and focusing on mortgages that have a high percentage of equity in them.

Berg is considered a leading practitioner of short selling, a trading technique used to bet against stocks

Berg has been shorting Fannie stock since the summer of 2003, when questions emerged about its accounting. Earlier this year, the company agreed to pay a $400 million fine after its regulator, the Office of Federal Housing Enterprise Oversight, accused executives of manipulating results.
The stock has dropped roughly 15% since the beginning of August 2003. It's up more than 10% so far this year.

Fannie's main business is buying mortgages from banks and other lenders, packaging them into so-called mortgage backed securities (MBS) and selling them on to other investors. The company gets fees for providing credit guarantees on these pools of loans. Fannie is currently responsible for more than $1.6 trillion of MBS and is involved in the financing of roughly a fifth of all U.S. mortgages.

By taking mortgages off the hands of other lenders, Fannie helps them free up more capital so they can sell more mortgages.

Fannie also invests in bits of MBS that have been put together and sold by other mortgage companies like Countrywide Financial and Washington Mutual . It held a little more than $730 billion in mortgage-related securities on its balance sheet at the end of June.

Subprime exposure

Fannie has traditionally specialized in higher-quality, fixed-rate mortgages, which are less vulnerable to interest-rate fluctuations and volatility in the housing market.

But the company has been investing more in subprime MBS in recent years. Subprime loans are sold to home buyers who fail to meet the strictest lending standards, so this area of the mortgage market is expected to be hit harder by any housing downturn.

Fannie and Freddie bought 25.2% of the record $272.81 billion in subprime MBS sold in the first half of 2006, according to Inside Mortgage Finance Publications, a Bethesda, Md.-based publisher that covers the home loan industry.

In 2005, Fannie and Freddie purchased 35.3% of all subprime MBS, the publication estimated. The year before, the two purchased almost 44% of all subprime MBS sold.

Three big lenders, NovaStar Financial , Deutsche Bank and BNC Mortgage, part of Lehman Brothers , sold more than half of their subprime MBS to Fannie and Freddie this year, said Andrew Analore, editor at Inside Mortgage Finance

Ofheo, Fannie's regulator, has noticed that the company has increased its subprime exposure.

"They've expanded in that area in recent years, but it's still not an enormous part of their business," Andrew Lawler, chief economist at Ofheo, said. "It's an area we're increasingly looking at because they're increasingly involved in it."

An Ofheo report due out later this year is expected to show Fannie's subprime exposure is "generally moving up," he added.

Given those recent moves, Berg said it's not implausible that 15% of Fannie's mortgage exposure is subprime.

If a housing slowdown causes subprime foreclosure loss rates to rise to between 6% and 8%, Fannie could lose $22 billion to $29 billion, Berg estimated in his letter.

That's more than half of the roughly $40 billion in capital that Fannie had at the end of March, according to Ofheo

Foreclosure loss rates on subprime mortgages are currently lower than Berg's theoretical range, but some experts are worried that foreclosures could increase in coming years.

"There's a high probability of a sharp increase in credit losses in the second half of 2007 and into 2008," said Robert Lacoursiere, an analyst at Banc of America Securities. "This will be more pronounced in subprime and will hit earlier in that area, too." http://immobilienblasen.blogspot.com/2006/09/delinquencies-foreclosure.html, http://immobilienblasen.blogspot.com/2006/09/delinquency-rate-in-home-equity-loan.html, http://immobilienblasen.blogspot.com/2006/09/subprime-delinquency-rate.html

Subprime stress

Early signs of stress are beginning to appear.
H&R Block announced an unexpected $102 million charge in late August related to its Option One mortgage business, which specializes in home loans to borrowers with credit scores at the lower end of the spectrum. The company said the losses cover loans it could be required to buy back should a borrower default on the first payment. http://immobilienblasen.blogspot.com/2006/09/update-conference-call-hr-block-hrb.html,

Mortgage-lender National City said recently that, while it has refrained from entering the riskier areas of lending, it has seen a marked increase in first-payment defaults on loans. http://immobilienblasen.blogspot.com/2006/09/notverkauf-bei-subprime-new.html

In California, one of the hot markets where home prices soared in recent years, defaults surged 67% in July from a year earlier.

Mortgage-insurance specialist MGIC Investment reported a 17.35% delinquency rate on A- rated and subprime loans as of the end of June. That's up from 12.38% in late 2002.

Fannie may have increased exposure to the subprime market in response to restrictions on its growth by regulators, Lacoursiere explained.

Subprime mortgage debt offers higher yields than better-quality loans. So one way for Fannie to generate more profit in the midst of restrictions on its portfolio is to invest in higher-yielding debt, he said.

"They've been getting into asset classes that haven't been a big specialty for them in the past," the analyst added. "Combine that with a credit environment in the mortgage market that is fundamentally deteriorating, and you start to wonder whether they're doing something that they may regret."

The problem is exacerbated by the fact that Fannie Mae hasn't disclosed financial statements for more than two years, Berg said in his letter. That makes it hard to gauge Fannie's true exposure to subprime mortgages and the housing market as a whole.

"Simply writing down these points in summary fashion illustrates the unprecedented and complex puzzle of a $46 billion market cap company that doesn't file financial statements," he wrote. "Moreover, the company has instituted a share buyback for the benefit of employees in the midst of this void! You can't make this stuff up."

Fine on subprime

Fannie doesn't disclose what percentage of its mortgage exposure is subprime, King, the company's spokesman, said.

However, Fannie's chief economist, David Berson, said in an interview that the company has "very little exposure to the subprime market."

Fannie also protects itself from a possible downturn in the housing market in a number of different ways, including maintaining a geographically diversity book of business and focusing on mortgages that have a high percentage of equity in them, King noted.

At the end of June, the loan-to-value ratio on Fannie's book of business was 54%, he added.
Other experts noted that when Fannie purchases subprime MBS, it usually only buys triple-A-rated tranches. In the event of losses, the triple-A bits are the last ones affected.

Ed Groshans, an analyst at Fox-Pitt, Kelton, estimated that if losses in these pools of mortgages reached 10%, investors in the triple-A tranches would still get all their interest and principal back.

"Higher interest rates will cause more people to go delinquent on their mortgages, but not enough to push losses on these pools over 6%," the analyst said.

Indeed, Lacoursiere of Banc of America Securities said other mortgage companies, such as Countrywide, Washington Mutual and IndyMac , are much more exposed to trouble in the subprime market than is Fannie Mae.

But Berg said most analysts and investors are underestimating the impact of the unwinding of what he called a "historic housing and mortgage bubble."

"We are only postulating that the subprime book could get in trouble and experience normal losses," he added. "Things could get far worse than our mildly bearish assumptions."

daumen drücken das diese prognose nicht eintreffen wird. bin mir auf der anderen seite sicher das der staat im zwiefel eingreifen wird wie er es mit der aussetzung der bilanzierungspflicht in den letzten 3 jahren ja bereist gemacht hat.

jan-martin