Fannie Mae could be hit hard by housing bust

Marketwatch reports:

The worst of Fannie Mae's regulatory troubles may be behind it, but one longtime skeptic of the mortgage giant thinks it could face bigger problems from trouble in the U.S. housing market.
Gilchrist Berg, founder of $2 billion Jacksonville, Fla.-based hedge-fund firm Water Street Capital, said in a recent letter to investors that Fannie Mae could lose $22 billion to $29 billion if, as he expects, the housing bubble bursts and foreclosures increase.
"We are not sure the folks running the show fully embrace the risk of declining house prices," Berg wrote in the letter, a copy of which was obtained by MarketWatch. If the housing market continues to decline "a major portion of Fannie Mae's value could be wiped out." He declined to comment for this story.

We should add that the state of Ohio is suing Fannie Mae for questionable accounting.