Fannie Mae (FNMA)

[YanksGhost]

The continued discussion about solvency at conservatorship is naive and flies in the face of the facts. The solvency standard for capital retention was eased by OFHEO in March of 2008 from a 30% regulator-imposed level to a 20% level... a 33% haircut to former reserve levels. It is all in James Lockhart's letter and the OFHEO 2008 report to Congress, as follows:

https://www.fhfa.gov/AboutUs/Reports/ReportDocuments/OFHEO_Report_Congress-2008.pdf

The GSEs were only made solvent by an ill-advised and ill-timed action by their weak regulator in OFHEO. Please see the "Return of the Blob" powerpoint presentation by Ed Pinto that I posted earlier today.

And the offering circulars for junior preferred stock in 2006 and 2007 clearly signaled the burgeoning risk to the GSEs as the mortgage market deteriorated and higher risk mortgages were becoming the norm for residential mortgage borrowers. To say that the conservatorship was some surprise is a farce of epic proportions.