Fannie Mae's Loss Risk Is Larger, Computer Models Show

[gristy]

An insider blows the whistle on Fannie Mae.

NY Times Article

<snip>
Fannie Mae , the giant mortgage finance company, faces much bigger losses from interest rate swings than it has publicly disclosed, according to computer models used by the company to estimate the value of its assets and debts.

At the end of last year, the models showed that Fannie Mae's portfolio would have lost $7.5 billion in value if interest rates rose immediately by 1.5 percentage points, internal company documents provided to The New York Times indicated. At that time, the market value of all the assets on Fannie Mae's books, minus all the company's debts, was about $15 billion. So it would have lost roughly half its market value from such a sharp increase in interest rates, according to the models.

With $923 billion in assets, Fannie Mae is the second-largest financial company in the United States, trailing only Citigroup . Fannie Mae, which is sponsored by the federal government, helps keep mortgage rates down by buying mortgages from banks and selling them or its own bonds to investors around the world. But some investors and outside experts say the company has become dangerously large and highly leveraged, with too much debt and not enough equity.

The models were provided to The Times by a former Fannie Mae employee, in return for assurance that he not be identified.

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on edit: added a little more article text

[salin]

1. Wonder how the record high of forclosures (defaults on mortgages)

plays into this story? The US is seeing the highest rate of forclosures since Hoover's term as president.

[Beetwasher]

2. Interesting Psychohistorical Analysis:

The author of this message is Lloyd DeMause:

MESSAGE FROM: [e-mail]
Again have been chatting with William K. Joseph, the psychohistorian most familiar with economics and the stock market, about the article in today's NYTimes (p. C1) saying "Fannie Mae's Loss Risk Is Larger" than expected.

What the Times has found out is that Fannie Mae, the multi-trillion dollar mortgage firm that buys most of the mortgages that are produced in the U.S., has probably lost half its market value because of a 1.5 percent increase in interest rates.

This is what has been feared. But what was most interesting was that no one notices it! Emotionally, it hasn't happened. The stock market today is up, not down. The article is quiet, no conclusions that this could, if continued, bring down the entire overleveredged U.S. economy. It is as though it isn't happening.

My recent research into dysfunctions of the right orbitalfrontal cortex produced in infancy and early childhood by neglect and abuse -- the kind half of America has had - shows that the alarm system gets turned off in adults who have been neglected and abused, so empathy and awareness of real dangers becomes "numbed, dissociated, avoided."

Bill Joseph says we're a "house of cards" waiting a precipitating incident to crash down. Any thoughts? Any cartoons showing collapse imagery? Any other economic information showing the same thing? Any other "numbing" occurring lately?

Lloyd

[JCMach1]

3. Fannie Mae= Real Estate Bubble

If one goes, so does the other...