I guess it shouldn’t be surprising, but the numbers for Freddie Mac's third quarter losses are really phenomenal. One analyst we called this morning said, “Freddie is a disaster,” and he said we could quote him on that. I won’t, but here’s what’s so striking to me. It’s not like we haven’t heard bad numbers from tons of lenders out there, but the difference here is that Freddie Mac , a GSE, doesn’t play that much in the field where all the bad sportsmanship took place.
Freddie is not a big subprime lender. As of September at least, of Freddie’s $713.1 billion portfolio, $105 billion of securities were backed by subprime mortgages. That’s a lot, but it’s nowhere close to the bulk of the portfolio. So the losses can’t all be subprime.
The trouble is, as a Fannie exec said on the call, you have to factor in home price depreciation and the corresponding historical default rate. Comparing to the housing downturn in the early nineties, if home prices fall 10%, then the default rate rises 4-5%.