Mr Mortgage: Fannie/Freddie Massively Underestimated Risks

Posted on July 12th, 2008 in Daily Mortgage/Housing News - The Real Story, Mr Mortgage's Personal Opinions/Research

I already did a Fannie/Freddie post a couple of days ago. After some thought and listening to the media underestimate the actual risk the agencies present with respect to the quality of the loans they guaranty, I decided to make a video on the subject.

YouTube video link:

It is amazing how most still think the agencies are mostly ‘prime’. Nouriel Roubini, who I greatly admire, recently published his spot-on thoughts about this situation and in it, I believe even he overestimates the quality of agency paper and underestimates risk.

Things are changing for the worse daily and it is now clearer than ever that subprime is subprime, Alt-A is closer to subprime than ‘Prime’ and ‘Prime’ is closer to Alt-A than anyone ever thought possible. Making it worse, the ‘negative equity effect’ is reeking havoc across all paper grades. -Best, Mr Mortgage

SUNDAY PM UPDATE… News is Breaking that Paulson is throwing the bathroom sink at this. Not quite the ‘kitchen sink’ yet. Bloomberg summarizes. Read below…what a mess! In the video above I explain why this is so disastrous. Whalen has no idea of the risks involved with something like this.

Making `Explicit’

“It is time to recognize that the GSEs were always dependent upon government support and now we must make the implicit explicit,” said Christopher Whalen, co-founder of independent research firm Institutional Risk Analytics in Torrance, California.


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