Fannie Mae (FNM) Troubles, Much Worse Than Feared?

Fannie Mae (FNM) execs are scheduled to speak to a House Committee in a further attempt to figure out what happened, and judge the depths of the company’s problems. An analyst at free-market think tannk American Enterprise Institute argues that loans we’d classify as “subprime” are a much bigger chunk of the company’s assets than they’ve let on, and that the losses are just beginning:

NYT: Peter J. Wallison, a fellow at the American Enterprise Institute and a longtime critic of Fannie Mae and Freddie Mac who issued a critical report of Fannie Mae with Mr. Calomiris in September, said Fannie Mae’s vague definitions for risky mortgages had masked its potential losses.

“Fannie is a much bigger and deeper hole than anybody has yet realised,” Mr. Wallison, a former Treasury Department counsel, said.

Fannie Mae lost $29 billion in the third quarter. Most of that deficit — more than $21 billion — reflected write-downs of deferred tax assets, rather than ailing mortgages. Fannie said last month that it was bracing for additional losses and might need more than the $100 billion that the government had pledged.

But in an interview, Mr. Wallison said that Fannie Mae’s losses could rise at least $100 billion because of “junk loans” that are obscured on its books.

Subprime loans, which are often defined as loans made to borrowers with FICO credit scores below 660, accounted for $8.7 billion, or about 0.3 per cent, of Fannie Mae’s total holdings of single-family mortgages, according to its third-quarter financial statement. But Fannie uses its own definition for subprime loans and does not disclose some of these definitions.

The hearing at Henry Waxman’s place will start at 10:00 AM.

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