A CEO we know said a week or so ago that the foreclosure fiasco is “just politics.” The “they’re all out to get me” brand of strategic planning doesn’t work well most of the time, but it’s particularly dangerous now. Just because politicians are brandishing pitchforks doesn’t mean they can’t disembowel an industry already exposed to the elements. That Foreclosuregate is political is undeniable; that it’s also a growing strategic challenge to the basic fabric of U.S. housing finance is, sadly, also true.

This is all too clear from data FedFin calculated this week on the risk at Fannie and Freddie. Together, Fannie and Freddie own or guarantee $199 billion in mortgages on which payments are ninety or more days past due. If we apply to this calculation Fannie’s 2Q notation that thirty-eight percent of its seriously-delinquent mortgages were in some stage of foreclosure, then over $75 billion of delinquent GSE mortgages are now frozen or about to be. Foreclosure delay, let alone a moratorium, on all of these will create a profound cash-flow problem now and worse -than-ever losses (due to house-price depreciation) to come.

Of course, not all delinquent borrowers are hapless victims of faulty foreclosure processes. Of these dramatic totals, many foreclosures will proceed apace again once the paperwork problems are proven not to apply to them. But, delay means dollars even for loans that ultimately will move through the mortgage mill.

Counting the cost of the crisis must also take into account not just borrowers entering the delinquency process – not reflected in the data noted above – but also potential strategic defaulters. We worry a lot about the thirty percent or so of current borrowers whose mortgages are under water. If nothing bad happens when you don’t pay a mortgage, more borrowers simply won’t. These numbers also don’t take into account the $1 billion Fannie and Freddie spent last quarter on foreclosure expenses, a number sure now to rise dramatically.

Not all foreclosed loans are in Fannie’s or Freddie’s hands, although the factors deepening their losses apply industry-wide. Of the 2.3 million mortgages now in foreclosure and those to come, at least $150 billion of mortgages at risk of foreclosure are in private-label securities out and about in the global financial market. Hundreds of billions of second liens are also associated with this dud paper, most of this still in the portfolios of the very largest banks. Although the bulk of the seconds are still – mirabile dictu – performing, the foreclosure fiasco adds even more risk to these obligations, especially given the prospects for even worse house-price depreciation.

One well-respected analyst earlier this week added another twenty percent down to his guess at the market’s bounce-back bottom. While we think this unduly pessimistic, forecasts on the other side – near-term, housing-market recovery – are also off the mark. At the least, the market will drop some more – how much no one knows – before pricing stabilizes, the ”shadow” foreclosure-related inventory again starts to clear and something like normalcy returns.

None of these numbers or forecasts counts another cost: the risk of a flat-out shut-down in U.S. residential finance. If this occurs, then every critical market participant – Fannie, Freddie, FHA and financial institutions – will have far less new revenue with which to absorb old losses and growing legal risk. For the biggest banks, recapitalization is in large part premised on retained earnings – the fewer of these, the harder it gets. For the GSEs and FHA, the less money in the door, the less their ability to cover credit losses. Even if eventually recovered from servicers, these losses will add to short-term taxpayer losses of dramatic proportions.

And, back to politics, all this comes at a most awkward time. With Republicans about to grow far stronger in Congress – heightening the call for GSE privatization – and the Obama Administration pledged to come up with a plan for housing finance, mortgage lending is at an inflection point – strategic-planning buzz for “up in the air”. With everyone shooting at it, a dramatic rewrite is in the works with untold implications for private servicing, securitization and origination practices.