Subprime, ARMs: Too Much Risk For FNM

While combing through Fannie Maes' last published financial statements I came across this blurb regarding the firms view of market conditions. "Annualized (MBS) growth...slowed to 4.3 percent, reflecting lower refinance-driven volume, a substantial increase in the origination of higher-risk forms of hybrid ARMs, and heightened competition from private label issuers."

"Market share gains by private label issuers have been driven by an increased proportion of sub-prime and Alt-A securitized mortgages, including interest-only hybrid ARMs. The sharp decline in our market share for these products reflects our belief that current market pricing does not adequately compensate for the credit risk."

That was June 2004. What does Fannie think now? We have no idea as they stopped publishing financials after that quarter. But it can't bode well for Countrywide Financial, Washington Mutual and Wells Fargo when the market leader thinks the profit is too slim given the default risk.