David Merkel submits: Ugh. I’m still not home yet, but after my recent 48-hour news blackout, the news on Fannie (FNM) and Freddie (FRE) is pretty amazing. Now, I would not be so certain that an interpretation of SFAS 140 would force Fannie or Freddie to raise capital — GAAP accounting often has little to do with regulatory capital rules. Only if OFHEO decides to mimic the treatment in GAAP would it force capital-raising, absent any net worth covenants on their debt that might be poorly written. All that said, the problems with Fannie and Freddie are not primarily accounting-driven, but are being driven by diminishing housing prices, which erodes their margin of safety on their lending and loan guarantees and diminishes the value of the mortgage insurance that they rely on for some of their business. Writedowns from these items are what hurt . It is likely that Fannie and Freddie need to raise capital, but the great questions are how much is needed, and how much can the market stomach? Complete Story » ...
Anytime
David Merkel submits: Ugh. I’m still not home yet, but after my recent 48-hour news blackout, the news on Fannie (FNM) and Freddie (FRE) is pretty amazing. Now, I would not be so certain that an interpretation of SFAS 140 would force Fannie or Freddie to raise capital — GAAP accounting often has little to do with regulatory capital rules. Only if OFHEO decides to mimic the treatment in GAAP would it force capital-raising, absent any net worth covenants on their debt that might be poorly written. All that said, the problems with Fannie and Freddie are not primarily accounting-driven, but are being driven by diminishing housing prices, which erodes their margin of safety on their lending and loan guarantees and diminishes the value of the mortgage insurance that they rely on for some of their business. Writedowns from these items are what hurt . It is likely that Fannie and Freddie need to raise capital, but the great questions are how much is needed, and how much can the market stomach? Complete Story » ...