Sunday, November 23, 2014

Fannie History Lesson

I've heard how Fannie lost over 117 billion from 2005-2008.. Lets see if that's true?

2007 Year 10-K

As of September 30, 2007, the latest date for which information was available, the amount of U.S. residential mortgage debt outstanding was estimated by the Federal Reserve to be approximately $11.8 trillion (including $11.0 trillion of single-family mortgages

Fannie Mae mortgage-backed securities (“Fannie Mae MBS”) held by third parties and credit enhancements that we provide on mortgage assets, was $2.8 trillion as of September 30, 2007, or approximately 23% of total U.S. residential mortgage debt outstanding.

Our financial results for 2007 were severely affected by the disruption in the mortgage and credit markets during the second half of 2007 and continued weakness in the housing markets. We recorded a net loss of $2.1 billion and a diluted loss per share of $2.63 in 2007, compared with net income and diluted earnings per share of $4.1 billion and $3.65 in 2006, and $6.3 billion and $6.01 in 2005.

SUM it up
2007 loss 2.1 billion
2006 Gain 4.1 billion (profit)
2005 Gain 6.3 billion (profit)

What about 10 Q on 8/8/2008 Just before the conservatorship took over?

Quarter 2 2008
 For the second quarter of 2008, we recorded a net loss of $2.3 billion and a diluted loss per share of $2.54, compared with a net loss of $2.2 billion and a diluted loss per share of $2.57 for the first quarter of 2008

SUM it up
2008 Q1 loss 2.2 billion
2008 Q2 loss 2.3 billion

Our core capital as of June 30, 2008 was $47.0 billion, $14.3 billion above our statutory minimum capital requirement and $9.4 billion above our regulator-directed 15% surplus requirement. We currently expect that we will remain above our regulatory capital requirement for the remainder of 2008.

SUM it up
After all of 2005, 2006, 2007, and the first 2 quarters of 2008, Fannie states that it has $47 Billion in Capital.
And have lost a total of ONLY 6.6 billion. We are now only 3 months away from conservatorship.

On September 6, 2008, the director of the Federal Housing Finance Agency (FHFA), James B. Lockhart III, announced his decision to place two Government-sponsored enterprises (GSEs), Fannie Mae (Federal National Mortgage Association) andFreddie Mac (Federal Home Loan Mortgage Corporation), into conservatorship run by the FHFA

Ok, Here is the First filing after the conservator took over:

Quarter 3, 2008  

On September 7, 2008, Henry M. Paulson, Jr., Secretary of the U.S. Department of the Treasury, or Treasury, and James B. Lockhart III, Director of FHFA announced several actions taken by Treasury and FHFA regarding Fannie Mae. Mr. Lockhart stated that they took these actions “to help restore confidence in Fannie Mae and Freddie Mac, enhance their capacity to fulfill their mission, and mitigate the systemic risk that has contributed directly to the instability in the current market.” 

Both prior to and after initiation of the conservatorship in the third quarter of 2008, our results continued to be adversely affected by conditions in the housing market. In addition, we recorded a significant non-cash charge of $21.4 billion during the third quarter of 2008 to establish a deferred tax asset valuation allowance, which contributed to a net loss of $29.0 billion and a diluted loss per share of $13.00 for the third quarter of 2008

SUM it up
After the conservator took over Fannie issued its first deferred tax loss, we know this was not needed as ALL DTA were returned in 2013. 
If you look close Q3 loss was Really 29 billion minus 21.4 billion or Q3 loss of 7.6 billion
We know from the previous quarter Fannie had 47 billion in capital and now subtract 7.6.billion and Fannie has 39.4 billion in capital still. The FHFA has stripped this capital from Fannie by requiring the 21.4 billion write down and severely diminishing its capital WELL AHEAD of its actual losses.
Fannie is Capitalized with 39.4 Billion at this point. 

The fair value of these level 3 non-recurring financial assets, which primarily consisted of certain guaranty assets and acquired property, totaled $12.0 billion as of September 30, 2008

SUM it up
You can see this works out with my sum it up $47 Billion in capital minus the 29 billion in Loss that the FHFA made up, You end up with only $18 billion left over in Capital. It would appear as $6 billion dollars disappeared but lets pretend like we don't NOTICE that. 

Finally lets look at the end of the YEAR 3 months after Conservatorship took over:

Our mortgage credit book of business, which includes mortgage assets we hold in our investment portfolio, our Fannie Mae MBS held by third parties and credit enhancements that we provide on mortgage assets, was $3.1 trillion as of September 30, 2008, or approximately 26% of total U.S. residential mortgage debt outstanding.

Notice Fannie now has 3.1 trillion in mortgages, just a year earlier they had 2.8 trillion. From 2008 start to 2008 end Fannie added $300 billion of Mortgages to their books as they were losing money. These purchases were mostly a backdoor purchase of HUGE amounts of subprime mortgages pushed on it by the Treasury. 

Fannie, Freddie to Buy $40 Billion a Month of Troubled Assets

By Dawn Kopecki - October 11, 2008 00:00 EDT 

Federal regulators directed Fannie Mae and Freddie Mac to start purchasing $40 billion a month of underperforming mortgage bonds as the Bush administration expands its options to buy troubled financial assets and resuscitate the U.S. economy, according to three people briefed about the plan.
Fannie and Freddie began notifying bond traders last week that each company needs to buy $20 billion a month in mostly subprime, Alt-A and non-performing prime mortgage securities
As a result of our net loss for the year ended December 31, 2008, our net worth (defined as the amount by which our total assets exceed our total liabilities, as reflected on our consolidated balance sheet prepared in accordance with GAAP), had a deficit of $15.2 billion as of December 31, 2008, a decrease of $59.3 billion from our net worth of $44.1 billion as of December 31, 2007. As of December 31, 2008, our fair value deficit (which represents a negative fair value of our net assets), as reflected in our consolidated non-GAAP fair value balance sheet, was $105.2 billion, a decrease of $142.5 billion from the fair value of our net assets as of December 31, 2007.
In the fourth quarter of 2008, we recorded an additional deferred tax asset valuation allowance of $9.4 billion, which represented the reserve for the tax benefit associated with the pre-tax loss we incurred in the fourth quarter of 2008. The additional $9.4 billion valuation allowance increased our total deferred tax asset valuation allowance to $30.8 billion as of December 31, 2008

Sum it up
2008 loss of 59.3 billion but.... 21.4 billion write down in Q3 and 9.4 billion for Q4. Total of $30.8 billion in DTA.
2008 True loss of $28.5 billion loss, on the back of forced buy from FHFA of $60 billion in toxic assets.
2008 True NON FHFA Capital: POSITIVE $31.5 billion dollars.

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