Fannie Mae Preferred S (FNMAS)

[brandemarcus]

Why would they make loans that would require that they be 100% reserved for? That's ridiculous! At most perhaps 1 in 3 would default and they would get at least half back after they sold the properties on the ones that defaulted. So reserves would be 18% of 170 billion or 31 billion.

Actually the gse's never insured sub prime loans. They foolishly added many subprime loans to their portfolio of investments. This was mainly in 2005 after Tim Howard and Frank Raines were not around for Fannie
Mae. These loans did have to be marked to market and were over 35% of the large losses in 2008. This is all explained in the 2009 blog by John Hempton. He analyzes the mark to market losses and claims the losses for Freddie were too large. Hempton also thinks that Fannie mae and Freddie mac would not have survived without some government assistance. I agree. Of course the amount needed was far less than the 132.5 billion provided.