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Fannie Mae: Lips Blistered From The Subprime Crack Pipe?

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It seems the #1 U.S. home finance company couldn't resist the sweetfreebase-like appeal of subprime yields. After the bell on Tuesday, Fannie Mae announced plans to issue $7 billion in non-convertible preferred stock and to cut its dividend by 30%, due in part to market losses on the securities that it owns.
Perhaps Fannie was bored with their cutesy New Deal era mission tp "help those who house America"; apparently, they were buying "private-label" subprime debt from banks in the private sector.
Even though their subprime and Alt-A mortgage-backed bond holding represent a "small proportion" of their overall mortgage portfolio, their combined value is nearly double Fannie's $40 billion of capital.
And it gets worse: According to the Fortune article, it seems that some of the securities that Fannie owns may be trading far below the 2% markdown that they applied in the third quarter. Future writedowns may be five times greater -- or more -- depending upon the securities involved. These include the aptly titled "liar loans", where deadbeats can take advantage of low-disclosure requirements to borrow more than
they can afford to pay back.

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