Now the losses on the underwater PMI (or MI as Whalen prefers to call it) are only one part of the picture. An even uglier part of the equation is the dead loans still being carried at face value:
As the GSE warehouse of delinquent and defaulted loans grows by billions of dollars each month, there is still no demand for payment from the MIs by the FHFA. As we noted in an earlier comment, we figure that there is as much as $200 billion in defaulted loans sitting on the books of Fannie and Freddie at cost — that is, close to par value
Loss severities are now running at 70%. They are only going to rise as housing prices are forecast to fall further in most markets and more borrowers are fighting foreclosure, which increases the cost of foreclosing. But if you take Whalen’s $200 billion top estimate and take a conservative 70% in loss severities, that gets you to $140 billion in unreported losses at the GSEs. So an estimate of north of $100 billion seems plausible.
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