Fannie’s Bottom

What if they held a wake and nobody came.

That’s what it seems like as we watch Fannie Mae and Freddie Mac thrash around. The two mortgage giants have fallen about 90% since last Summer. Still, they’re involved with over half of all the mortgages originated in the country.

The market is worried that with housing prices declining more and more homeowners will find themselves upside-down on their mortgages and just turn in the keys. If that happens, Fannie and Freddie’s capital may be wiped out. That was the basis of last week’s sell-off.

But mortgage performance has actually been just fine. The Agencies used appropriate approval standards and didn’t put people into loans that they couldn’t pay. That’s why the default rate for prime loans is so much lower than non-agency loans. Indeed, S&P recently wrote that the market turmoil has not affected the Agencies’ excellent credit.

Nevertheless, fears of cascading failures have slammed the entire financial sector. Because the sector seems so fragile, we probably won’t see much Fed action very soon.


Douglas R. Tengdin, CFA
Chief Investment Officer
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By | 2014-09-03T20:11:13+00:00 July 15th, 2008|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. - Leave a comment if you have any questions—I read them all! - And Follow me on Twitter @GlobalMarketUpd

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