A Prediction: Freddie Will be the Surviving GSE

While Fannie Mae continues to bleed red ink like a busted crankcase, Freddie Mac turned a profit in the fourth quarter. Overall, it earned $1.5 billion -- but then had to give its “Godfather” (the U.S. Treasury) $1.7 billion in protection money, er, I mean, dividends. Sounds a bit screwy to me but then again the past 10 years in this industry have been screwy. On the surface it would appear that Fannie is a lost cause. The firm posted red ink of $2.4 billion in 4Q and dropped its second largest client, Bank of America, like a ton of bricks. B of A, by the way, is now driving around town in a Cadillac owned by a fella named Freddie. Historically, Freddie Mac has always been the more conservative of the two GSEs. It thrived under a former college professor named Leland Brendsel only to lose its way under a former FHLB president. Fannie has always rolled the dice more and was never too shy about throwing its political weight around under CEOs Jim 'I Want to be Treasury Secretary' Johnson and Franklin 'OMB Chief' Raines. (Don't get me wrong -- Freddie was no angel either when it came to politics.) Anyway, don't be surprised to see some Congressman or Senator introduce a bill that merges Fannie into Freddie, placing the latter in charge – under the watchful eye of Ed DeMarco. Then again, maybe Fannie will pull a rabbit out of a hat. There is one 'wild card' to consider here: go look at all the loan loss reserves that Fannie and Freddie have set aside the past few years. Is it possible that some of it might be “recaptured”? I'm just saying…