Fannie Mae’s fuzzy math: Fortune magazine reported that the lender changed the
way it discloses bad loans, which could be masking rising credit losses.

“Investors might want to take a closer look at Fannie Mae’s latest
earnings report. Lost in the unsurprising news of the mortgage lender’s
heavy losses was a critical change in the way the company discloses its
bad loans — a move that could mask that credit losses that are rising
above levels that the company predicted just three months ago.

Without the change in disclosure, an important yardstick for credit losses that Fannie Mae provides to investors would have looked much worse than it did in financials filed last week.

Fannie
Mae’s potentially misleading disclosure comes at a crucial time for the
company. Fannie Mae was severely penalized last year for overstating
earnings and for a lack of oversight. As part of its punishment, the
amount of home loans that Fannie Mae can make was limited.”

There’s a quick and dirty look at Fannie Mae at the chart below.

Early Friday, Fannie Mae (FNM) shares were little changed; (UPDATE: On Thursday after Fortune magazine reported

site disclosed this info, and the stock tanked). This morning, it was down as much as 10%.

The charts looks eerily similar to Tyco (TYC) back int he days pre-disaster -– and where
there is smoke, there is often fire.

>


graphic courtesy of Kevin Lane, Fusion IQ

>

Source:
Fannie Mae’s fuzzy math
Peter Eavis
Fortune, November 15 2007: 9:29 AM EST

http://money.cnn.com/2007/11/15/magazines/fortune/fannie_losses.fortune/index.htm?postversion=2007111509

Category: Corporate Management, Credit, Derivatives, Short Selling, Valuation

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

25 Responses to “Fannie Mae Looks Like Hell”

  1. UrbanDigs says:

    why would a govt supported enterprise lie? that goes against everything our gov’t stands for?

  2. VJ says:

    The CEO of Wells Fargo, John Stumpf:

    We have not seen a nationwide decline in housing like this since the Great Depression,” Stumpf said at a Merrill Lynch banking conference in New York. “I don’t think we’re in the ninth inning of unwinding this,” he continued. “If we are, it’s an extra-inning game.”

    Stumpf’s comments came hours after Barclays announced a $2.7 billion write-down for losses on securities linked to U.S. subprime mortgages. Other banks to announce write-downs topping $1 billion this month include Bank of America, Bear Stearns, Citigroup, HSBC Holdings, Morgan Stanley and Wachovia. Merrill Lynch and Washington Mutual have also seen results suffer from losses tied to mortgages.

    CNBC LINK
    .

  3. ron says:

    There is no alternative to the GSE’s within the current mortgage lending model. Without Fannie and Freddie providing the gov’t warranty of good lending nobody will buy the paper. So either the gov’t steps in and continues to support these entities and actually ups the funding or we go back to a pre FDR type mortgage lending model with only banks and private individuals providing financing. I don’t have to paint a picture what that would do to the overall value of US SFH real estate valued today by the FED at over 20 trillion dollars.

  4. Majorajam says:

    There was a booming private label market for a while, but, well, yeah. Greenspan utilized Fannie and Freddie to save the day in 98, only to realize years later that he’d created a monster. Now, whether it’s their huge credit risk exposure (trillions teetering on a razor thin slice of capital), or their hedging of mass destruction derivative portfolio, (which they’re taking losses on as well), they represent the biggest systemic risk to a financial system replete with these. I would say that the government would be remiss to step in and grow their gargantuan balance sheets yet more- the whole, “the longer you let it go on, the worse the damage” bit- but the boat on capping damages left quite a while ago. As it is, I would recommend perpetuating these Ponzi schemes as long as they can- there’s probably not much downside to doing so…

    PS It’s govt sponsored enterprises, not supported enterprises.

  5. Stormrunner says:

    >>It’s govt sponsored enterprises, not supported enterprises.

    When the bail outs commense sponsorship will morph into support and the Government support truth be told will be Tax-Payer support. Its all semantics, no guarantees no clarity, just crony capitalism at work.

  6. peter from oz says:

    as you know barry I’ve been waiting/looking for the black swan event
    maybe it happened and was simply that no one on wall street, govt related institutions or govt expected mortgage defaults to potential reach unprecendented multi standard deviations into the forseeable future
    their “models” and strategies hopelessly underestimated super low interest rates (as a teaser) igniting the free enterprise nesting instinct of the human being for his/her family far outweighing future financial and economic reality and historically lulled by a credit mgt philosophy of multi card availability to all with the associated rollover and juggle
    rgds pcm

  7. Marcus Aurelius says:

    “why would a govt supported enterprise lie? that goes against everything our gov’t stands for?”

    Posted by: UrbanDigs | Nov 16, 2007 11:35:47 AM

    ____________________________

    I hope this is sarcasm. If so, in the future, please indicate that this is so with a /snark off/, or some other device, so that the reader understands.

    If your post isn’t sarcasm, you need to put the Kool-aid down and do a little open-minded research into exactly what haqs been happening to our government over the past 7 years.

    For example, you are aware that Iraq had nothing to do with 9/11, and that your share of the National debt for this fiasco is currently $2,000 (approx.). This amount applies to every man, woman, and child in our country. You’re posting on a finance/economics blog, might I ask what you expect as ROI for this considerable sum?

    Never let a businessman – especially a repeatedly failed businessman – run your government. What we are seeing is the Enronization of our government.

  8. Stormrunner says:

    peter from oz

    Off topic and its likely you already knew this, it was news to me and for those who didn’t

    http://www.webofdebt.com/excerpts/chapter-1.php

    It would seem that the Wizard of Oz is purported to have been anallegory for the populist movement toward sound money.

  9. peter from oz says:

    stormrunner had seen that
    most of our traditional nursery rhymes began as political ditties disguised to avoid ruinous libel and slander suits in 18/19th century
    anyhow back to the topic
    lenders and their “models” and politicians are faced with huge problem/opportunity in presidential year of 2008
    who is going to arrive with the “New Deal” for the bankrupted and marginalised (but voter majority)and address the financial solvency of Banks and other institutions?
    estragon is waiting for godot!
    rgds pcm

  10. The Dirty Mac says:

    “who is going to arrive with the “New Deal” for the bankrupted and marginalised (but voter majority)and address the financial solvency of Banks and other institutions?”

    Ron Paul in ’08!!!

  11. The Dirty Mac says:

    “who is going to arrive with the “New Deal” for the bankrupted and marginalised (but voter majority)and address the financial solvency of Banks and other institutions?”

    Ron Paul in ’08!!!

  12. SINGER says:

    how phat was that sell opportunity on the bounce from 38 in ’05 to 69 earlier this year??????

  13. Snarky says:

    It seems like the public sector tries to find the best man to run Merril, GS, C, etc. Who are the ass clowns who run FNM?

  14. KB says:

    So should we be worried about our MMF’s yet?

  15. OMG! Enron flashback!!! A story breaks in Fortune magazine. Accounting questions raised. Stock price drops through support. And then…?

    But with a GSE??? Nah… couldn’t happen…

  16. Brian B. says:

    WOW,
    now I know we are in trouble…. I actually agree with one of V.J.’s “selective” posts…I was a loan officer as I have stated before, and there will be much more pain before it gets even close to better.. becareful out there…

  17. rickrude says:

    finally, Fannie is in trouble, be waiting for this for the last 8 yrs.
    Great news.
    The idiots that invest in this kind of
    american mortgage crap should lose their pants.

  18. rickrude says:

    finally, Fannie is in trouble, be waiting for this for the last 8 yrs.
    Great news.
    The idiots that invest in this kind of
    american mortgage crap should lose their pants.

  19. rich says:

    http://calculatedrisk.blogspot.com/2007/11/fannie-maes-credit-loss-ratio-fuzzy.html

    Fannie Mae’s Credit Loss Ratio: Fuzzy Math or Fuzzy Reporter?

    This is going to be a long post. It is going to attempt to answer the question stated in the post title. It is also going to function as further proof of the old axiom that you can create quite a ruckus in 150 badly-chosen words, but it takes ten times that many words (at least) to return some sanity to the discussion.

    rt

  20. Unsympathetic says:

    This blog post and the reaction to the CNN story is an example of how bad reporting can affect a sound company. THERE IS NOT A PROBLEM WITH FANNIE MAE.

    Read the CR article above. The CNN writer is a sensationalist twit with an axe to grind who doesn’t want to understand accounting details.

  21. Unsympathetic says:

    This blog post and the reaction to the CNN story is an example of how bad reporting can affect a sound company. THERE IS NOT A PROBLEM WITH FANNIE MAE.

    Read the CR article above. The CNN writer is a sensationalist twit with an axe to grind who doesn’t want to understand accounting details.

  22. dblwyo says:

    I just circled back to this post after reviewing CR with the intent of bringing to light here the Great Tanta’s dissection of yet another piece of mis-informed reporting by someone too ill-informed or lazy to do the classical spadework. Fortunately Unsymp and rich bet me too it earlier – read the CR post. It’s long, painful and deeply informative.
    There is, at the end of the day, no substitute for performance and therefore for substitute for understanding how the buzz saw works if you’re going to make lumber.

  23. Comparing Online Reports: The Case of Fannie Mae

    One of our missions at A Dash is helping investors find their way through the maze of online information. In particular, it is often the case that a little knowledge can be a dangerous thing. Mainstream media sources now have

  24. Fannie Mae: Ouch!

    On Friday, we noted that Fannie Mae Looks Like Hell. In the weekend linkfest, we noted the Fortune article about Fannie Mae, as well as out own Sell on the stock. The emails from numerous readers were fascinating. I learned some things about my ancestr…

  25. lastchance says:

    Ok, what part of this don’t you get; the GSE’s were developed to provide liquidity to the market so lenders could continue to lend. If you look at the long history of these institutions they have done more than a great job. Most of you have your homes based on these fundamental facts.

    The politics of today, i.e. our illustrious President and some holier than thou polititians have all but put thier thumb on the only way to clean this situation up. It is not an Enron type situation it is a government plot to hold these two corporations hostage. Yes they had accounting situations; if you truly understood the whole picture you would be less inclined to judge them and more inclined to take a long look at our current political climate.

    If Fannie and Freddie were held to the accounting standands of a bank and regulated by the OCC this would be a complete different situation. We instead have regulators that have their own agenda’s and that is what we should really be looking at.

    These are privtely held and publically traded companies NOT an organization like FHA that requires your tax dollars.

    Wake up people this IS the way out of this mess; get the caps raised at Fannnie and Freddie and start helping people stay in their homes and stop all of these foreclosures. Put some quality back into the American securities that they are raging about. When it comes down to it isn’t that what should be most important?