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Monday, September 15, 2008

Gretchen's Modest Proposal

by Tanta on 9/15/2008 04:28:00 PM

I thought maybe we'd need some comic relief on a day like today. And there's nothing like Gretchen Morgenson for comedy.

This may be the single dumbest thing Morgenson has ever written. I had to read this over several times, aloud, to make sure I wasn't misreading it:

Here is a modest suggestion for James B. Lockhart, chairman of the F.H.F.A., to consider: Do the new owners — us deep-pocketed taxpayers — a favor, and open up Mac ’n’ Mae’s books so we can see exactly what we own.

Also, force both companies to disclose details on every mortgage they guaranteed or purchased in the last 10 years. This would include loan type, the year when the loan was made, the original rating on the security and its originator.

That way, the new owners would be able to see how deep into the subprime loan swamp Fannie and Freddie waded during the lending spree. After all, according to Inside Mortgage Finance, an industry publication, Mac ’n’ Mae bought almost $170 billion in subprime mortgage-backed securities in 2005, roughly one-third of the total issuance that year. And they bought an additional $120 billion in subprime mortgage securities in 2006, or 27 percent of the total amount issued.
I can't even start with the fact that after all this time, Morgenson still can't keep straight on the difference between the rating of a security (or a tranche of one) and the "rating" of a mortgage loan. She has been making that mistake for about two years now, as far as my memory serves, and she will apparently never stop.

No, today we must contemplate the "modest" suggestion that Fannie and Freddie report loan-level data on every loan purchased or guaranteed in the last ten years, so that the taxpayers can see for themselves what we've got here.

By my rough calculation, the two GSEs purchased about $10.013 trillion in mortgage loans between 1997 and 2007. (Data here, Figure 26.) I do not have average loan size figures for all of those years, but in 2002, the midpoint, the average loan size was $160,000. Using that average, we get 62,581,250 loans.

(Wait, you say. The total mortgage debt outstanding for all holders of mortgage loans for the whole country at the end of 2007 was only $12 trillion. And total Fannie and Freddie portfolio (retained and MBS) at the end of 2007 was only about $5 trillion. Well, yes. But Morgenson wants data on every loan ever purchased in those years, whether they are still outstanding or not.)

So how are Billy Joe and Bobby Sue Taxpayer going to examine a database of 62.5 million loans? Fairly slowly, I'd guess. Since the Taxpayers don't generally run mainframes, it just wouldn't do to "disclose" this information on magnetic tape. A lot of them do have PCs, of course, and many of those PCs run Excel. Excel 2003 has a maximum number of rows per spreadsheet of 65,536, so you could get 62.5 million loans into no more than about 950 separate spreadsheets.

Maybe this could just be for the Taxpayers who run Access. Access has no limit for the number of records, although the database size is limited to 2GB. We don't really know how much data per 62.5 million loans Morgenson wants, so I don't really know how many separate databases we'd need here. I just know I wouldn't want to try to manipulate one on my home PC; I'd guess that it wouldn't exactly run very fast.

Of course there's always paper, which can be made available online as pdf. With a limited number of columns and a small font, you might be able to get 100 loans on a page. That would only require a 625,812.5 page "disclosure." That shouldn't create any server problems, and we could all go long on manufacturers of toner cartridges.

Now that I think about it, it would be sort of fun if Lockhart decided to take Morgenson up on her modest suggestion. That is, if he generated a 625,812.5 page report and emailed it to Morgenson. The Times must have pretty big servers, no?

You know you are in the presence of a not very well hidden agenda when someone proposes something this dumb. "The taxpayers" do not have the time or the expertise or the technology to browse through a disclosure regarding 62.5 million loans. Most sophisticated institutional investors don't have it, either. The GSEs disclose summary data because life is too damned short for anyone to get anything but summaries. All Morgenson is doing here is making a ridiculous demand that won't be met, so that she can then claim that Fannie and Freddie "refuse to disclose fully."