Tuesday, 05.06.08
Sunny Side Down
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Bubbling Over
13 August 2002
In 2002 William Powers wondered whether a real estate bubble had formed.
What's Next for Wall Street?
January 2008
How could one be less optimistic than a Wall Street housing analyst? Ask Fannie Mae, which just told analysts they'd strayed a little too far onto the sunny side. Expected to lose 81 cents a share on its gigantic portfolio of mortgages and securities, today the institution announced it had lost $2.57 a share, thanks to plummeting house prices and soaring delinquencies. Markets were taken aback. Fannie Mae, along with brother institution Freddie Mac, buys more than 75% of the mortgages in the United States. When it sneezes, your house gets double pneumonia.
By 11 am, the stock was off by 7%, and the Dow was down too. The timing is infelicitous. People have just begun wondering if the worst of the financial-market crisis is behind us. But it's hard to look at Fannie Mae's results without at least a flutter of foreboding. Moody's has downgraded its financial strength rating, housing inventories are rising, and homebuilder D. R. Horton today announced a $1.3-billion loss.
The timing isn't good for Fannie Mae itself, either (not that there's ever a great moment to announce that you've lost massive amounts of money). The Office of Federal Housing Enterprise Oversight, its regulator, is still requiring Fannie Mae to maintain surplus capital as part of a settlement regarding accounting problems. Those requirements were just lowered to 20%, and are supposed to fall to 15% soon -- if Fannie Mae raises more money. And just as Fannie was reporting a staggering loss and a cut in dividend payments, it announced that it would be seeking $6 billion in new equity investment. The clouds may still be hanging over Wall Street, but Fannie's executives seem to think they can turn that frown upside-down.
And perhaps they're right. After its immediate fall in the stock market, Fannie bounced back. By midday it was slightly up. The size of its losses may prove to be oddly reassuring -- if they're that that big, they can't be hiding much on their books. Perhaps we really have reached the point where things can't get any worse. Then again, perhaps we're still being too optimistic.
Mistakes were madeCharles Morris explains how we got into the current financial crisis. |
Inscrutable household nameWhat is Fannie Mae, anyway? Bill Mann explains. |
De facto insured?Jonathan R. Lang wonders whether Fannie Mae will benefit from the next government bailout. |
Problems at the topMickey Kaus was critical of Fannie Mae as early as 1998. |
