Following the collapse of the housing market in 2007 and 2008, not only did home prices fall along with the mortgage-backed securities they were wrapped into, but so did real estate lending. Between Q3 of 2008 and Q1 of 2012, real estate loans from all U.S. commercial banks fell for the first time in modern history, from $3.8 trillion to $3.5 trillion based on Federal Reserve data.
Oof another article leaving me with some questions and some potential factual errors.
First, how did you create the chart showing the ratio of RE loans to MBS Asset Value? I spent about two minutes on FRED couldn't figure it out...what's the data source? I ask because RE loans are generally measured at par while MBS asset value would be at fair value. Also maybe there's a stock/flow comparison problem? Is it real estate loans originated each year versus MBS asset value at year end? Or RE loans at commercial banks / FV of MBS outstanding? Interesting chart nonetheless!
However, I think you have some problems with your citations to Fannie and Freddie loans. Let's start with Countrywide: it's accurate that Fannie reported the 28% figure, but Freddie did not. So the 28% amount is of Fannie alone, not 28% of Fannie + Freddie. Freddie does disclose that BAC + CFC were 22% of Freddie's 2008 purchase volumes (page 164 of Freddie's 2009 10-K) but doesn't disclose CFC alone or the amounts in 2007.
Second on Fannie/Freddie: you cite Fannie's loan portfolio at $311B and Freddie at $80B and the text makes clear this is combined single+multifamily. However, as best I can determine, these are not correct. Fannie shows on-balance sheet amount $311B of single family mortages (page F-46 of its 2007 10-K) but there's an additional $91B multifamily. Likewise you cited Freddie at $80B but they disclose slightly different 2007 numbers on page 219 of their 2008 10-k (look at comparative 2007 figures in table 6.1). Also, the text in your article shows Fannie numbers presented before basis and loss adjustments; Freddie numbers are presented after such adjustments.
Lastly, neither of these Fannie or Freddie numbers show the values of the amounts held in MBS. As the text in both disclosures makes clear, the numbers cited above are amounts held by the related GSE balance sheet. A logical assumption is such loans are warehoused prior to securitization.
But the amounts securitized (and thus off balance sheet for Fannie and Freddie in 2007) was massively larger. I couldn't find it in Fannie's 2007 10-k and didn't bother looking at Freddie. This is one reason the accounting rules were changes in the financial crisis - the process of securitization created variable interest entities and the consolidation rules allowed for diversity in practice that make determining the true value outstanding really difficult to find in the reported numbers.
This is the real danger - in 2007/08/09, the reported values at CFC, FNMA, and FHLMC wildly understated the risk of loss of these entities due to securitization shifting mortgages-related balances into a mixed up group of on balance sheet and off, amortized value and fair value.
Oof another article leaving me with some questions and some potential factual errors.
First, how did you create the chart showing the ratio of RE loans to MBS Asset Value? I spent about two minutes on FRED couldn't figure it out...what's the data source? I ask because RE loans are generally measured at par while MBS asset value would be at fair value. Also maybe there's a stock/flow comparison problem? Is it real estate loans originated each year versus MBS asset value at year end? Or RE loans at commercial banks / FV of MBS outstanding? Interesting chart nonetheless!
However, I think you have some problems with your citations to Fannie and Freddie loans. Let's start with Countrywide: it's accurate that Fannie reported the 28% figure, but Freddie did not. So the 28% amount is of Fannie alone, not 28% of Fannie + Freddie. Freddie does disclose that BAC + CFC were 22% of Freddie's 2008 purchase volumes (page 164 of Freddie's 2009 10-K) but doesn't disclose CFC alone or the amounts in 2007.
Second on Fannie/Freddie: you cite Fannie's loan portfolio at $311B and Freddie at $80B and the text makes clear this is combined single+multifamily. However, as best I can determine, these are not correct. Fannie shows on-balance sheet amount $311B of single family mortages (page F-46 of its 2007 10-K) but there's an additional $91B multifamily. Likewise you cited Freddie at $80B but they disclose slightly different 2007 numbers on page 219 of their 2008 10-k (look at comparative 2007 figures in table 6.1). Also, the text in your article shows Fannie numbers presented before basis and loss adjustments; Freddie numbers are presented after such adjustments.
Lastly, neither of these Fannie or Freddie numbers show the values of the amounts held in MBS. As the text in both disclosures makes clear, the numbers cited above are amounts held by the related GSE balance sheet. A logical assumption is such loans are warehoused prior to securitization.
But the amounts securitized (and thus off balance sheet for Fannie and Freddie in 2007) was massively larger. I couldn't find it in Fannie's 2007 10-k and didn't bother looking at Freddie. This is one reason the accounting rules were changes in the financial crisis - the process of securitization created variable interest entities and the consolidation rules allowed for diversity in practice that make determining the true value outstanding really difficult to find in the reported numbers.
This is the real danger - in 2007/08/09, the reported values at CFC, FNMA, and FHLMC wildly understated the risk of loss of these entities due to securitization shifting mortgages-related balances into a mixed up group of on balance sheet and off, amortized value and fair value.