The Bankwatch

Tracking the consumer evolution of financial services

More on the valuation of Freddie/ Fannie, and their capital requirement

UPDATE: to post 14th July 2008

Fannie/ Freddie collectively have $5,300 billion in mortgage credits against $ 81 bn in capital.
Any revaluation of their mortgages by more than 1.5% discount will wipe out their capital base.

More than half their loans are from the peak years of 2005 – 2007.
Valuation of their mortgages is difficult, but it is certain they are
worth something less than face value. While they had a rule of not lending greater than 80% of home value, this rule was broken through top up loans, and potentially through loans purchased from investment dealers.

Fannie and Freddie double the US national debt « The Bankwatch

Nonetheless its no small leap to realise that the US government is now on the hook until the underlying asset value is clarified.

Reference ft.com

Written by Colin Henderson

July 15, 2008 at 12:10

Posted in subprime

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