In short, in the past eight months, Fannie and Freddie bought, and Radian and MGIC insured, some of the worst loans ever originated. A statement like that on the back of the toxic 2006 vintage should be cause for pause. While mortgage industry woes are beyond well documented, there is no reason these insurers of whole loans are in any less a precarious state than bond insurers like Ambac (ABK) and MBIA (MBI) as home prices continue to drop and delinquencies continue to soar.
One needs look no further than Wells Fargo's (WFC) recent announcement of losses on Prime Home Equity loans as evidence of more pain to come. If Mortgage Insurance replaced the second lien, and there is currently no bid for second liens – who will miss the last seat this time around?
~ Andrew Jeffery, "Mortgage Insight From the Trenches," Minyanville.com, November 29, 2007