Reply #9: Fannie defaulting. Truely scary stuff

[Robbien]

And its financial reports are all just smoke and mirrors

Fannie reports a net worth of $45.4B, $3.9B more than its minimum capital requirement of $41.5B. BUT, $13B of that are deferred tax credits that only have value if the company earns enough money to trigger them -- an unlikely scenario. Barron's notes that if Fannie were a bank, none of the $13B would be allowed on its balance sheet. Another $8.1B of its net worth is from Lower Income Housing Tax Credit partnerships, which are also likely to expire worthless. That leaves $45.4 - $13 - $8.1 = $24.3B.

Looking at its liabilities, Fannie tells regulators it will have to pay out $15.4B in guarantees on its $2.4T guaranty book. Yet on its "fair value" balance sheet, the guarantees are estimated at $20.4B. What's worse, Fannie's estimates assume guaranty payments of just 0.74% of the portfolio, where smaller rival Freddie pegs its payouts at 1.5% -- and Freddie has a lower delinquency rate than Fannie. Also, in Q4 the firm wrote down its $74B of non-agency subprime and Alt-A mortgages by just 6% ($4.6B), of which its says only $1.4B is permanent. Most major banks (MER, UBS) wrote down much higher percentages on similar paper, with no qualifiers. Using conservative default rates, Barron's says Fannie could be hit by cumulative credit losses of over $50B.

above analysis by
http://seekingalpha.com/article/67748-fannie-may-fail-barron-s

Fannie wrote down at-risk mortgages by only 6%? Over half of Fannie's net assets are unused and unearned credits which are expected to expire unused?

Yup, Fannie is defaulting. Scary stuff.