Friday, September 16, 2011

Fannie and Freddie Acquitted (Again and Again)

The GSE Conservator just released its updated report to Congress for Q2 of 2011. One of its most intriguing findings is that the total losses from the GSE investment portfolio (that is purchases of private label MBS) have melted to a harmless $3 billion. The GSE investments were simply too small and too safe to generate much loss. Notably, notwithstanding the continuing malaise in the residential real estate market this loss declined dramatically over the past year. Indeed, Fannie's investment actually turned positive over the last year. Here is my initial post on this point, from September 21, 2010.

My last post proved that the GSEs acted as super-prime lenders through the performance of their loan portfolio which had far fewer delinquencies than private lenders who really dominated the risky subprime lending market. This post shows that they also acted as a super-prime investor losing only $3 billion from all their purchases of MBS. I confess it is getting harder and harder to see how the GSEs contributed at all to the subprime crisis.

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