Wednesday, November 11, 2009

Fannie, Freddie, Counterparty Risk and More

by Calculated Risk on 11/11/2009 10:08:00 PM

Yesterday I posted some excerpt from Freddie Mac's 10-Q:

We believe that several of our mortgage insurance counterparties are at risk of falling out of compliance with regulatory capital requirements, which may result in regulatory actions that could threaten our ability to receive future claims payments, and negatively impact our access to mortgage insurance for high LTV loans.
The WSJ has more tonight, including the risks to Fannie Mae: Fannie, Freddie Warn on More Losses
Fannie Mae has about $109.5 billion of mortgage-insurance coverage in force ... Freddie Mac had $63.4 billion in mortgage insurance and $12.2 billion in bond insurance.
And this a key sentence:
The reduction in private insurance coverage has contributed to the rise in the volume of loans backed by the Federal Housing Administration ...
Instead of using private mortgage insurance for loans greater than 80% LTV, low down payment borrowers are now using FHA insurance.

That will probably end well ...

Also - the WSJ has more on the new FDIC "Prudent Commercial Real Estate Loan Workouts" guidance issued Oct 30th: Banks Hasten to Adopt New Loan Rules. Here is the new FDIC guidance that states performing loans "made to creditworthy borrowers" will not require write downs "solely because the value of the underlying collateral declined".