Fannie
Mae could be hit hard by housing bust: Berg
$22 to $29 Billion Federal Reserve Notes is not exactly chump change. Gilchrist Berg, the hedge fund guru in Florida says to his investors as quoted in the linked essay above:
"We are not sure the folks [at Fannie Mae] running the show fully embrace the risk of declining house prices." That is quite a powerful statement in our view, especially when we remember that the master of value investing Berkshire Hathaway in Omaha liquidated all of their GSE holdings in 1999 before this mortgage, debt, and house price escalation actually left the runaway train station. I remember reading a couple of essays about the Sage [Oracle] of Omaha dumping the housing portfolio, mainly composed of Freddy Mac [if I remember correctly], and the essays were permeated with a little four-letter word -- "risk." The first two paragraphs of the linked essay above are like a one-two punch boxingwise speaking. However, if one considers the quality of all that bundled paper as mortgage backed securities [MBS for all you folks in the know], a $29 billion loss at FNM [Fannie Mae] could be nothing more than chump change if a lot of those house appraisals were done to hit a number to make the loan to begin with. It is called lender client pressure on the real estate appraiser to hit the magical mystery number. Combine whatever percentage the reader wishes as part of the FNM portfolios of bundled loans with inflated appraisals, and the money meter in the name of the game is bailout starts ticking like a good old Timex. For you see ole Fannie Mae and a lot of these other fat cats have been relying on credit scores taking precedence to making loans rather than the market value of that there real estate collateral. The lending industry went to a one page form called the 2055 [easy to fake values], drive-by appraisals [ehh.... you flash a picture of the front of the house from your fast Caddy at 50 MPH and never go inside the property], as well as AVMs [ehh... automated valuation models from the desk] in lieu of having the customer/borrower pay for the full meal deal [ehh... full Fannie Mae 1004 2-page appraisal, which is now a 3-page form]. If the borrower had a great credit score, some of the fat cats, would not even have the real estate appraised. No, I am not making this stuff up. Now factor in a wee bit of appraisal fraud and mortgage fraud in these MBSs, coupled with declining real estate values and subprime mortgage loan exposure. I love to cook with Tabasco and paprika, the real Hungarian stuff. Add a little accounting irregularities and a few fines. It seems to me that $29 billion may just be chump change when the chickens come home to roost. And a Timex will work just as well as a Rolex... It takes a licking but keeps on ticking..... Tick. Tick. Tick. Tick. Warmest regards to all! © 2006 Realty Reality |
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