Ignorance Is Bliss?

There seems to be no limit to the ignorance of some investors.

Even though a collapsing housing market, the prospect of a nasty, consumer-led recession, and razor-thin capital cushions make it clear that the outlook for the country's largest mortgage lenders is dicey at best, investors have decided they know better and have been bottom-fishing in the shares of Fannie Mae and Freddie Mac.

Meanwhile, foreign investors, who are often clueless about such risks until they are suddenly blindsided with the bad news they should have been expecting, have been piling into the debt of these two government-sponsored enterprises.

Still, it should be fun to watch when an ever-so-predictable reality, which articles like the following from Reuters, "Fannie, Freddie Regulator Sees More Risk Ahead," are already alluding to, eventually unfolds and these people lose their shirts.

The unsettled U.S. mortgage and housing markets have left Fannie Mae and Freddie Mac exposed to serious risks, their federal regulator said on Tuesday.

The two, the top U.S. housing finance companies, are under stress as they walk a line between curbing record losses and increasing their role in stabilizing the ailing U.S. housing market.

But as they try to boost the mortgage market, "both companies remain classified as significant supervisory concerns," the Office of Federal Housing Enterprise Oversight said in its annual report to Congress.

"The extraordinary declines in the housing and mortgage markets have greatly increased their credit and interest rate risks," OFHEO director James Lockhart said in a letter to lawmakers.

Despite the turmoil, OFHEO concludes that the two government-sponsored enterprises have done good work to buttress internal controls and prepare themselves for the rocky market.

The report "was more upbeat, as the GSEs have remedied nearly all of their accounting and control issues, and are both issuing financial statements on a timely basis," wrote Credit Suisse analyst Moshe Orenbuch in a research note.

"However, OFHEO noted that each remains a significant supervisory concern, as a result of their poor performance and increased credit and other risks in the environment," he added. Credit Suisse maintained its "underperform" ratings on the companies.

Fannie Mae and Freddie Mac "need to raise additional capital" in order to protect themselves against losses even though they have recently won some relief to expand their mortgage investments, OFHEO said.

The companies are expected to raise significant capital to supplement a move by the regulator to relax constraints last month on the two, the biggest providers of U.S. home loan funding.

Capital has become the main focal point for the GSEs, which must walk a line between pleasing lawmakers and regulators with mortgage purchases and protecting shareholders from dilution of stock and credit losses. The companies in the fourth quarter raised $14 billion in capital with sales of preferred stock, but much of that was eroded by $6.1 billion in combined losses for the period.

Fannie and Freddie have for years been under tight oversight and rules limiting their growth.

In March, the companies were permitted to expand their mortgage investments and OFHEO said it expects to allow them to increase holdings further this year.

Comments

[Smack MacDougal]

Collectivism works for those who hold power.

This is true whether the expression of Collectivism is a Monarch, Oligarchy, Plutocracy, Council Dictatorship, Techno-Bureaucrato Corporatist Democracy.

The Federal National Mortgage Association and Federal Home Mortgage Corporation exist to funnel Collectivist Profits to those at the top in the U.S. while pushing wage workers with the expenses and losses.

Collectivist Shareholders own and manage these corporations, taking profit and writing-off lavish expenses. Wage earners pay the expenses and losses.

In true Collectivist Psy Op induced upon those of the Rabble (the masses), these Collectivist Money Makers get cutesy names to hide their purpose.

Dummies parrot these names -- Fannie Mae and Freddie Mac.

In true Free Markets, when folks live in Freedom, the Force of Collectivist Governance does not exist.

Dummies cannot see the that they live under an Officialdom of Collectivism and never have lived under a Republic of Freedom, unless they lived before the U.S. War to Force a Union.