I have received a few comments on the Fannie article – which I was going to include in the parts II and III – but as the comments in the email just keep coming I will put something up now:
- The first comment is that I can’t possibly believe that they are solvent given that they are 130 times levered to a really bad housing market.
- I make no such suggestion at all. I simply have not got an answer until I do the credit analysis. However I can say that the inventory and delinquency numbers that they have right now do not indicate insolvency – for them to be insolvent a lot more bad loans have to come through the system than have already come through the system.
- The second – and more sophisticated comment is that all insurers raise rates when times are bad – but it doesn’t save many of them – so why should I spend so much time exploring this effect with Fannie?
- Well – the pricing effect does save some insurers. It only saves them if they can continue to write business – so I don’t ever talk about the pricing effect with MBI or ABK who are effectively in runoff. But I still want to work the numbers.
- That the repo inventory at Fannie is 20 percent in
– even though only 3 percent of their exposure is there. Michigan
- That is a real issue which I hadn’t picked up on but should have. When you are as levered as Fannie if a single large state economically falls into the ocean then you can die. I have blogged several times about how bad the housing market is in
(see here and here). It is entirely possible that Fannie loses a very much larger proportion of its inventory. However the point remains that losing 100% on the current inventory is not a problem – for Fannie to be insolvent an awful lot more loans need to pass through the inventory. Michigan
As it currently stands very few of Fannie’s losses are in
On the price of hookers in
Well I tried…
No seriously – in the comments was the astounding observation that people in the
But if you wish to confirm that
On the last method of research – there is a company in