Fannie Mae – The Day After The Big Reality Blow-Off

Posted on May 7th, 2008 in Daily Mortgage/Housing News - The Real Story

Yesterday, everyone was writing about Fannie so I left it alone. There is not much more to add, so let me summarize.

  • Loss of $2.2 BILLION, which slightly less than FOUR TIMES greater than expected
  • $51 BILLION in Subprime exposure
  • $345 BILLION in Alt-A exposure
  • Cut dividend and issued $6 BILLION of debt to raise capital without telling anyone how much they had to pay for said debt
  • Moody’s downgraded Fannie’s strength one level to ‘B’ and sees a possible $9 BILLION loss in 2008-2009
  • Warns the housing ‘slump’ will persist into next year 

FANNIE MAE STOCK RALLIED 15% from the opening lows on this news due to:

  • News OFHEO will loosen capital requirements on Fannie
  • Fannie said they will take advantage of this downturn to book quality business that will actually be profitable some time in the future.
  • Barney Frank’s proposed $300 BILLION bailout, which requires banks to reduce mortgage notes to 85% loan to value looks to have much support

There ya go. Fannie is having serious trouble as they stated. But, all it takes is OFHEO to allow them to leverage up more and Barney Frank to come in with yet another bailout and the stock rallies 15%. I am not short Fannie Mae (right now), but dislocations in financial markets that are this obvious and this extreme rarely end positively for stocks. Well, that’s unless you are short. -Best, Mr Mortgage

7 Responses to “Fannie Mae – The Day After The Big Reality Blow-Off”

  1. The fed and congress keep trying to change the game. The government isnt the wizard of oz pulling levers behind some curtain. In the long run if you believe the government will save you reality is going to smack you in the face real hard.

  2. I recently came accross your blog and have been reading along. I thought I would leave my first comment. I dont know what to say except that I have enjoyed reading. Nice blog.

    Tim Ramsey

  3. […] Read the rest of this great post here […]

  4. yip.

  5. Soooooo! funny this rallye on Fannie Mae !

    Keep on doing your fantastic work Mister Mortgage. It’s real fun comparing your analysis, which are objective, compared to the complete bullshit on TV. I have cancelled my subcription to my cable operator. They asked me why. I answered. Because I cannot stand all the bullshit. Finally ! The Internet is really helpful !

  6. Government intervention… ask the folk in New Orleans how that worked out.

    This implosion will make Katrina look like free ice cream day at Ben & Jerry’s.

  7. Good work Brownie! From Brownie to Bernie !

    Hurricane season is coming. Strangely enough the real estate crisis in Florida in the 20’s started just after a major hurricane.Anyways now the hurricane is global.

    Did you know that real estate prices in Spain have crashed 30% since last year. Strange indeed. Espagna, California and Frorida, Nevada, Arizona, crashing approximatively by the same pourcentage at the same time ? All in the sun spots and a lot of hispanic speakers ? The Brits are losing a bundle, not only in the UK, but in Spain too. I know it’s a coincidence. But it’s still strange.

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