Fannie, Freddie Insolvent

It seems that the Enron accounting on Fannie and Freddie has been reported on.

Bloomberg -
FAS 140
The new FAS 140 rule that seeks to stop companies keeping assets in off-balance sheet entities may force Fannie Mae and Freddie Mac to bring mortgages back onto their books, requiring them to put up capital, Lehman analysts led by Bruce Harting wrote in a note to clients today. Fannie Mae would need to add $46 billion of capital and Freddie Mac would need about $29 billion, the Lehman analysts wrote. The companies will probably get an exemption from the rule because it would be ``very difficult'' for them to raise that amount of capital, the analysts said.

Of course they probably will get an exemption. However, there remains the possibility that the regulators will crack down on Fannie/Freddie lending. In the meantime, the even bigger problem they face is the blowout in spreads from about a 1.00% spread over 30-yr Treasuries to 1.45%. This means that investors are shunning agency bonds. If Fannie and Freddie can't resell bonds to investors, the entire US housing market will become a black hole.

How many people can pay cash for a house?