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Can Wall Street Outduel Uncle Sam?

In this segment of The Motley Fool's everything-financials show, Where the Money Is, banking analysts Matt Koppenheffer and David Hanson discuss the most recent saga involving Fannie Mae and Freddie Mac and their disgruntled shareholders.

Matt and David discuss how the situation may be better suited for resourceful hedge funds rather than individual investors.

Earning season slowdown?
With the American markets reaching new highs, investors and pundits alike are skeptical about future growth. They shouldn't be. Many global regions are still stuck in neutral, and their resurgence could result in windfall profits for select companies. A recent Motley Fool report, "3 Strong Buys for a Global Economic Recovery," outlines three companies that could take off when the global economy gains steam. Click here to read the full report!

To watch Where the Money Is in its entirety, click here!

You can follow David and Matt on Twitter.

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  • Report this Comment On July 09, 2013, at 12:44 AM, Vita0112358 wrote:

    In the mid-2000s, GSE securitization declined dramatically as a share of overall securitization, while private label securitization dramatically increased. Most of the growth in private label securitization was through high-risk subprime and Alt-A mortgages. As private securitization gained market share and the GSEs retreated, mortgage quality declined dramatically. The worst performing mortgages were securitized by the private banks, whereas GSE mortgages continued to perform better than the rest of the market, including mortgages that were not securitized and were instead held in portfolio.

    The GSE business model has outperformed any other real estate business throughout its existence, which many critics ignore. According to the Annual Report to Congress, filed by the Federal Housing Finance Agency, over a span of 37 years, from 1971 through 2007, Fannie's average annual loss rate on its mortgage book was about four basis points. Losses were disproportionately worse during the crisis years, 2008 through 2011, when Fannie's average annual loss rate was 52 basis points. Freddie Mac's results are comparable.

    By way of contrast, during the 1991–2007 period, commercial banks' average annual loss rate on single family mortgages was about 15 basis points. During the 2008-2011 period, annual losses were 184 basis points. Or take a look at the FHFA study that compares, on an apples-to-apples basis, GSEs loan originations with those for private label securitizations. The study segments loans four ways, by ARMs-versus-fixed-rate, as well as by vintage, by FICO score and by loan-to-value ratio. In almost every one of 1800 different comparisons covering years 2001 through 2008, GSE loan performance was exponentially better. On average, GSE fixed-rate loans performed four times better, and GSE ARMs performed five times better (DAVID FIDERER).

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9/29/2016 9:41 AM
FMCC $1.58 Down -0.01 -0.63%
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