I was thinking as well that if these two agencies account for 75% of the mortgages and they themselves default, then what will housing look like near term? Will inventory explode to 15-20 months literally what will seem like overnight? Will long term interest rates explode to near double digits? What will the default landscape look like? Will foreclosures spike by 200% or more? This could be a potential disaster in the making and the bad part is it has to happen, it will happen, heck in some ways it is already happening isn’t it?

It sounds like you are admitting on a public blog that you personally committed fraud. Is that correct?

So where to now? Well the answer is obvious to me. We take it over and Common and Preferred share holders lose 100% period. No discussion here looking at the numbers. Period. end of story for them and then move to subordinated holders depending what is left after Seniors get their money. My bet is not too much is left. In fact nothing may be left to be quite realistic when you really look at the numbers here. Then destroy these agencies once and for all!

The consequences for our countries actions will be felt for a long, long time and many, many people will suffer as a result of our decisions, but we now have a chance to break free of this foolish set up of GSE’s that never should have gotten as big as it has and as powerful in terms of dollars. This was totally wreckless in my opinion to our countries financial stability!!!

Hey if it comes to the US jepordizing treasuries and / or tax payers footing the bill in America in order to save our fellow Asian countries I have news for you. It ain’t happening! Unless this country wants 100 million people to take up arms in the street it will never happen that we suffer at the hands of any other country. We have freedom of speech and the biggest armed army in the world bar none… The American Tax Payer!!! They will not go there. They can’t go there to be quite honest…

1. I’m not surprised by most of your “I saw xxx” comments, I’ve seen or heard about a lot of that stuff going on, especially appraisers consistently using the most expensive comparables. But your comment about “appraisal waivers for $150 fee” is new to me, what exactly does that mean? Did the underwriter, or Fannie, waive the need for a real appraisal under certain circumstances?

2. My impression has been that Fannie/Freddie underwriting was actually pretty decent, if not stellar, up until 2007 when private lending dried up, and then their standards really fell off a cliff and they started taking on all the toxic Alt-A stuff that used to go to the private paper market. Is that an accurate assessment?

This is where Wall St analysts fall flat on their face. They have no clue what was really done during the past 5 years and base everything off the ratings. I, on the other hand, have consistently been 6 months a year ahead of the raters. I am just telling you things that WILL happen based upon my intimate knowledge of what really happened.

I saw 580 credit score borrowers fresh out of a foreclosure, get a ‘Prime’ loan with the best rates Fannie had available if you lied on the input and said he had 50% of the mortgage amount in liquid assets which includes ready cash and retirement at 70%.

I saw up to 50% of all the rate and term refis to 80% loan to value and even up to 100% cltv get appraisal waivers for $150 fee to Fannie.

I saw underwriters re-run the loan through the DU or LP system over and over and over again changing the numbers around slightly each time until the finding gave an ‘approved/eligible’ and it was classified Prime. Then the underwriter would write up an approval based upon the borrower or broker getting conditions that matched was needed for this specific approval even though by this time it was night and day different from the original loan application.

I saw every appraiser from 2002-2007 not provide the ‘best’ comparables rather the most expensive comparables.

When it comes down to it, subprime is subprime is suprime. The GSE’s have already categorized $700 billion and Alt-A and Subprime. I believe that up to 50% of these will default. There are also $1 to $1.25tt in loans currently rated Prime that are missing very important documentation and will perform as much lower grade paper, primarily due to borrower quality, negative equity and interest rate adjustments on the ARM product.

The securities will fall apart. Nobody is expecting what I know will happen. They never expected Jumbo Prime to begin to default and the raters assulting this segment either. I was screaming about Jumbo Prime mid 2007. Just give it time.

I am not saying any ‘total’ will go bad.

I maintain that all GSE securities have such low levels of credit support due to the false assumptions about credit quality and collateral valuation that all loss assumptions are incorrect.

I am not saying 100% of the securities will go bad by any means but I absolutely could see 33-50% of all their Alt-A and Subprime individual loans go bad over time. I maintain that those labaled ‘Alt-A’ are more likely subprime quality especially after values have fallen so far so fast.

Due to their faulty underwriting systems, DU and LP, I think another $1tt to $1.25tt of ‘Prime’ loans are actually anything but that and will perform much closer to Alt-A or Subprime over time.

If I am correct, then it could conceivably wipe out many securities now thought to be safe.

One more thing, if you are correct then why is there any question whatsoever over th US Gov’t backing these securities. If they all are going to be fine why are threats rolling in from their owners about the ‘implicit’ becoming ‘explicit’.

If you are right, there should be no ‘explicit’ guaranty and these securities should trade on their own accord, with respect to both price and cash flows.

Your understanding of how the GSEs report their delinquency figures is incorrect.

Your total amount of loans originated that are guaranteed by the GSEs that you assume will go bad is wrong.

Your thoughts about the total amount of prime loans the GSEs have insured that will go bad is lunacy. These loans have already gone through a very severe stress period and are still performing.

You are stetching your figures to reach your 100 percent increase claim.

Even if all your thoughts were facts, it still does not change the assertion of the original post which is that the real downside risk to default of MBS is extremely low and these cash flows help service agency debt.