Fannie Mae, Freddie Mac

I started writing about these two quasi-governmental mortgage-buyers a couple of years ago; it seemed then that, if something really bad were going to happen in the financial industry, they would be the first place to look.

After all, they were poorly supervised, with a regulatory agency that was half asleep at best.

They had already lost billions of dollars, but no one knew quite how much, since they hadn’t been able to deliver a real financial report for years.

Management was lax, at best, and probably at best was a stretch.

I figured there was something like six billion dollars in cash (not mortgage adjustments) that had just kind of “gone missing” during a time when even chipmunks were making money in real estate.

Last year, they finally brought their books up to 2005, fired a few managers, and declared a bit more than that in losses. Things were looking up.

Today, UBS analysts suggested that additional losses at the FMs this quarter could reach $16B; that’s $8-11B at Mac and $2-5B at Mae.

Let’s try to put this in perspective: without the FMs, particularly in the current real estate mood, there is no mortgage lending industry in the U.S.

I think the number could be much larger, maybe in the $50B+ range. Heck, even Citi and Merrill can lose $18-20B in Q4; the FMs are specialists.

The real question: how fast can the government fill that hole? While the Congress and president fiddle with little inconsequential rebates, a real problem could be brewing inside Fannie and Freddie.