FNMA and Freddie don’t have nearly enough capital to cover their losses from the kind of downturn we all talk about here on Piggington. As the prior poster pointed out, it’s easy to get around the new rules, so everyone will. FNMA and Freddie aren’t dumb, so they know that.
I think there are folks at those organizations who think the market will start going back up again in 2009 or so, before they’re wiped out. These folks think the new rules won’t have to bite because all will be well once the market starts to go back up again. All will be forgiven. In the meanwhile, they get credit for appearing to be tough now.
Other folks at Fannie and Freddie see what we see, and know that the organization will be bailed out, but maybe not the stockholders. In their eyes, there’s no benefit in coming up with rules that actually bite, and actually save money, because the govt will end up having to cover all actual losses in excess of shareholder equity. So they just announce stuff to make themsleves sound prudent enough to deserve the bailout when it comes.
For heaven’s sake, these organizations are still lending 80% or more of home prices that are still multiples of the inflation-adjusted prices at the low point (1996) of the last cycle. They obviously aren’t trying to match their risk management practices to the risks we see.
