Fannie & Freddie: Myth vs. Reality, Part 2

After the stunning developments that occurred today I thought it would be a good idea to update my previous views on Fannie Mae (FNM) and Freddie Mac (FRE). I'm not going to get into any moral hazard discussions because A) I don't believe in judging others, and B) it is irrelevant to evaluating this investment. A few key points:

1) The businesses didn't change last week. The stock prices did which is irrelevant to the actual business fundamentals. These companies do have some embedded losses in their portfolios due to the housing slump, but I have no doubt that the actual losses will be substantially less than the mark to market losses that have already been taken by the respective companies. Horrendous and irresponsible journalism had far more to do with what we saw last week then the actual fundamentals of the business.