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Monday, August 11, 2008

Housing/Subprime/Credit Roundup — August 11, 2008

Items of Interest:

Fannie Mae headquarters in Washington, DCReuters:
Fannie's capital to remain under pressure: analyst -- Fannie Mae's credit losses will exceed the company's expectations, continuing to put pressure on its capital levels and earnings, an analyst at Friedman Billings Ramsey said.

The largest U.S. home-funding company would need to raise additional capital of $5 billion to $10 billion to strengthen its balance sheet for future credit losses and continue to supply liquidity to the mortgage market, analyst Paul Miller said in a note.

Credit losses will not peak until late 2009/early 2010, and this should result in elevated provisioning over the next three to four quarters, possibly pressuring the company's capital cushion, he said.

"We believe the GSEs (government-sponsored enterprises) will continue to have trouble with both credit losses and capital levels, and we recommend that investors remain cautious on the names over the next few quarters," the analyst said.

Miller cut his price target on the shares of Fannie Mae to $6 from $11 to reflect continued pressure on capital from credit losses. He maintained his "underperform" rating in the stock...

'Meet the Press' transcript with Hank Paulson & Tom Brokaw --
MR. BROKAW: You have the ability now to insert money into Freddie Mac and Fannie Mae. Do you think that that's going to become necessary, given the size of these losses?

SEC'Y PAULSON: Well, we have no plans to insert money in, in, in, in either of those institutions. I, I think it was very important that we get these temporary backup facilities because Fannie and Freddie are very important to our capital markets broadly. There's $5 trillion of securities that they have outstanding--$3 1/2 trillion in the U.S., a trillion and a half outside of the U.S.--and they're responsible for funding about 70 percent of the mortgages in the United States today. And so a key to our getting through this, this housing situation, this housing correction and getting some stability is that we continue to have mortgage financing available.

MR. BROKAW: Those two agencies were not well known to most taxpayers in this country...

SEC'Y PAULSON: Yeah, yeah.

MR. BROKAW: ...until the housing crisis hit.


MR. BROKAW: But we also know that they were caught in some significant accounting irregularities. They changed the management at the top; now they're both hemorrhaging money. You do have the authority to bail them out if it becomes necessary. But a lot of taxpayers are saying, "Why should I have to foot the bill for this?" I mean, there are wealthy investors who bought these bonds knowing that the government would not back them. Now, suddenly, they've got a fail-safe arrangement with the Treasury secretary.

SEC'Y PAULSON: Well, I've heard a lot of those same comments, and what I say to all those who make the comments to me is I say to them, you know, this was not a pleasant task for me to go to the Congress and ask for these backup facilities. Matter of fact, it was a very unpleasant task. But it was an easy one because it was better than the alternative. These institutions are right now critical to the stability of our capital markets, and they're critical to us getting through this, this housing situation...

Bennett Sedacca / Minyanville:
comment on Paulson interview -- So Fannie and Freddie don't need money...That is what Hank Paulson said in a Meet the Press interview. Right. And I don't need oxygen to breathe. Or food and water to live. Capital has to come from somewhere. And there are no other options. Also, of note, Mr. Paulson is stepping down in November.

Can't say I blame him. Me thinks the next President and Treasury Secretary are in for, well... a rough ride. Maybe bring back Teddy Roosevelt and the Rough Riders?

Fannie Mae & Freddie Mac: pigs at the trough----
FDIC Fund Strained by Bank Failures May Have to Raise Premiums -- The failure of IndyMac Bancorp Inc. and seven other banks this year may erase as much as 17 percent of a government insurance fund and raise premiums for all banks, from Franklin National of Minneapolis to Bank of America Corp.

The closing of IndyMac in July, the third-biggest U.S. bank failure, may cost the fund $4 billion to $8 billion, in addition to an estimated $1.16 billion for seven closures through Aug. 1. Premiums for deposit insurance will likely rise, FDIC Chairman Sheila Bair said in a July 30 interview. A decision on the increase is due by the fourth quarter...

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