Better, But No Way Good
FHFA today released its annual exam report on Fannie, Freddie and the FHLBs. Here, we look at what we learned about Fannie and Freddie, focusing particularly on whether the proprietary details provided in this report shed light on the GSEs’ exposure to market risk in the increasingly volatile fixed-income market. FHFA is in fact reasonably sanguine in this area, but it remains deeply worried about the broader risk profile presented by each of the GSEs. Together, they comprised 77% of the nation’s mortgage market last year, but each remains “critical” – that is, a very high-risk institution. Earnings of late are better, but FHFA rightly admonishes markets and policy-makers not to count on them. In short, stay scared.

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