Fannie Mae-No Politics (FNMA)

[FOFreddie]

Although the GSEs are taking risk on loans that currently make up 5% of their MBS portfolio it takes away the argument that the GSEs should bail out the weak servicers. Servicers still have to advance 4 months and after that the GSE's will have to cover MBS payments. Remember the GSE's will ONLY incurr loses if the underlying mortgages go into default and the net proceeds from the sale of the underlying homes are less than unpaid payments and principal.

This seems to be a reasonable risk although they may take reserves for this. The GSEs have a excellent opportunity to expand the weighted average lives of their MBS portfolio with every new purchase or refinance at historically low interest rates. The loan to value of their portfolios protect them but if the US real estate market collaspes there will be losses..

This is the business opportunity - everything has risks. Overall it may be one of the best risk vs return opportunities in the mortgage finance or banking sectors on a comparative basis ?