Fannie Mae-No Politics (FNMA)

[Wise Man]

On January1st the new accounting standard CECL took offect. CECL stands for Current Expected Credit Losses. The name says it all. FnF use models of expected credit losses in their portfolios and they are discounted today. Freddie Mac says that it expects $0.2 billion and Fannie Mae, $1.1 billion credit losses in the future, discounted today. Literally, they said that the CECL standard will translate into a reduction in the Retained Earnings in the amounts that I mentioned, so they didn't say that they are their expected credit losses, although it can't be other theme.
This is because their weighted average mark-to-market LTV ratio stands at 57%, therefore the properties cover their credit risks. That's why their expected losses are so low.
The previous accounting standard approved in mid 2008 of incurred losses was so damaging that it was the cause of the conservatorship, as it's devastating for modified loans since FnF had to set aside a provision equal to the concession granted to borrowers, and it prompted massive losses 2008-2012. I expect part of this "fake loss" reserve ($13 billion combined) to be partially released in 1Q2020 results due to this new CECL standard, although this is another theme.