Better, But Not Good
In this report, we assess the broad market and policy impact of Fannie’s upbeat 4Q and 2012 earnings. Like Freddie, the GSE is clearing a profit – all to the good, of course. But, neither of the GSEs is out of the woods – we remain concerned about operational, interest-rate, liquidity and even credit risk — risk for which both GSEs remain ill-prepared even as they send big bucks back to Uncle Sam. The biggest risk, though, is that Congress and the White House might demur substantive GSE reform in favor of incremental projects (e.g., structured risk-shares) and continued talk about doing something sometime. Keeping the GSEs in conservatorship from which key pieces are nibbled out without giving them the resources and direction with which to undertake meaningful risk reduction remains a high-risk strategy despite growing profits and improvements in the housing-market’s credit picture.
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