Yup, we are domed.
Posted on 11/19/2007 8:58:35 AM PST by Moonman62
NEW YORK (Reuters) - Freddie Mac (NYSE:FRE - News) may report a loss of between $1 billion to $5 billion on its subprime AAA portfolio, Credit Suisse said on Monday, sending shares in the second-largest U.S. mortgage finance company sharply lower.
"While Freddie's AAA subprime securities likely have substantial subordination, if the recent credit spread widening does not reverse over the coming quarters, we believe that Freddie could recognize an other-than-temporary impairment of between $1-5 billion," the brokerage said in a research note.
The losses may force Freddie to sell some of its portfolio holdings or raise capital by issuing preferred stock, the note added.
Freddie shares fell 8.6 percent to $37.24.
Separately, a brokerage downgraded its recommendation on Freddie's larger mortgage-finance cousin, Fannie Mae (NYSE:FNM - News). Friedman, Billings, Ramsey & Co. Inc. said it was downgrading Fannie to market perform from outperform and cut its price target on the stock to $35 from $60.
"We now believe the stock will trade close to book value over the next few quarters due to the uncertainty of the impact from the continued deterioration in the housing market and rising credit losses," the brokerage said.
On Monday morning, Fannie shares were down 7.3 percent at $37.70.
(Reporting by Patrick Rucker, Editing by Tom Hals)
WE’RE DOMED!
Why Not Just Give Them A Roomful Of Gold? Or: Immigration - Just Another Government Program
Dude, VDARE?
c’mon...
NATIONAL COUNCIL OF LA RAZA TO OFFER CREDITSMART® HOMEOWNERSHIP PRESERVATION MATERIALS
Are you familiar with ACORN?
“...subprime AAA portfolio...”
Why does my brain go into vapor-lock when I read this?
Countrywide recently said that its newer and supposedly better screened subprime mortgages are selling well in the secondary market. Even with the old subprime loans, 80% of them still have on time payments.
Yup, we are domed.
I heard that as well.
When I hear “AAA” in connection with rating debt, I don’t expect to hear “80% on-time payments” — I expect to hear something like 99.mumble% on-time payments.
Economy/Credit/Housing Issues Ping List
If you want on or off this list let me know.
On another topic, have you looked at bond yields today, or in past couple of weeks? The Fed is falling way behind the curve once again.
The 80% on-time sounds about right, in comparison with the ABX. 07 AAA’s are quoting low 70’s, high 60’s.
Speaking of domes, how is their alt-A?
Yea, I noticed that. Your thoughts on whether they’re going to cut again, given the signals coming out of various governors that they might not want to after the previous 75 bp?
The only thing I can think of on this (no stunning insights to a person of your experience, for sure): no cut, the market swoons big. Cut, the dollar swoons more, and makes the Bush admin look out of step with the Fed.
Yes, you’re right about where the market is pricing this stuff.
I’m going back to “what does a AAA rating signify to a bond buyer?” sort of thing. When I see a “AAA” rating on something, I think in terms of:
1. US Treasuries.
2. The seven or eight companies out of all companies on the US exchanges who can issue AAA corporate debt.
3. A stable debt environment in which these bonds are issued.
Anything coming out of the subprime mortgage space meets none of those qualifications. I don’t care how it is sliced, diced or re-packaged. Let’s think about this a sec: these mortgages are called “subprime” because they’re being made to people with low FICO scores or other credit issues (eg, stated income, etc). So we have, in effect, one credit rating agency (Fair, Isaac & Co) saying “This borrower isn’t a prime rate borrower” and the bank making the loan agreeing with this assessment (because they’re writing a subprime loan to the borrower), but then we have Fitch’s (or S&P or Moody’s) saying “This is AAA debt - gilt edged!” (or Aaa, etc) because some bunch of financial “engineers” creating some synthetic instrument that is supposed to make it as good as a gilt.
That’s where I get really PO’ed in this whole situation. This is a classic case of putting lip gloss on a pig and trying to parade it down the runway of a fashion show...
As far as the dollar goes there needs to be coordinated intervention to strengthen it or to hold the line while the Fed eases. For the past couple of years, the European Central Bank has complained about oil prices causing inflation, so they keep hiking their rates (in spite of some very high unemployment rates in some of their countries). Thus they have exacerbated the dollar's weakness, causing higher oil prices since oil is priced in dollars, and making their perceived cause of inflation worse. It makes no sense.
Intervention also drives speculators out of the market. People complain about stock market and housing bubbles, but nobody complains about a weak dollar bubble. Why not?
Some people will complain that intervention doesn't add any real value to the dollar, but I counter that it will return the dollar more to a fair value based on the above reasoning and will give the Fed room to lower rates.
And I'm no expert, but I keep an open mind, and realize that while most central bankers are very smart, they are human and susceptible to the same cognitive errors as anyone else, and that central banks mimic each other and have been making the same institutional errors for decades.
Great website
Well...JimRob doesn’t allow postings from there, and the reason is that it’s full of racist vitrol, even if they do blind-squirrel it once in a while.
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