Can the GSEs Keep the Lights On?

We have reviewed the Fannie and Freddie 3Q earnings.  These continue the gradual return to financial health evidenced last quarter, although — as before — the GSEs remain on a slow climb out of a big hole that can only be accomplished if loan-loss reserves prove ample and other risks fail to materialize.  Most striking in the latest earnings is the sharp differences in the concentration of each GSE’s exposure to the evolving world of mortgage lending and their current put-back risk. Similar as they are, Fannie and Freddie remain different companies with different business models, differences that complicate recovery and reform.

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