For some reason, it does not surprise me that Fannie and Freddie are once again in the news.  Reports say that the two mortgages giants may show less than stellar results for second quarter, writing down once again.  The two have already warned investors that credit-related losses, such as payouts on loans they guarantee, would likely rise through 2008.  If you follow them as much as I do, this comes as no big surprise.  Even though they are government backed, they are still private enterprises, and it is thought by many that the two seriously underestimated the real troubles in the mortgage market.   The market is seeing this as Freddie and Fannie not having enough capital to offset their losses, adding further turmoil to an already unstable marketplace.

Both companies had already ratcheted up predictions of losses, with Freddie to 16 basis points or 0.16 percent of total mortgage book in 208, and Fannie reporting a credit loss ratio to 13 to 17 basis points, at least double its historical range.   Although this may not sound like a big deal, consider that Fannie and Freddie own or guarantee nearly half of the $12 trillion mortgage market.  Vivek Tawadey, head of credit strategy at BNP Paribas in London, had this to say: “Turbulent market conditions lie ahead, would probably be an understatement considering the early impact from Merrill Lynch & Co and other institutions that have taken “painful steps.”   Painful steps indeed.  I am reminded of IndyMac and Bear Stearns.  Can Freddie and Fannie be very far behind?  Fannie Mae has about $70 billion in subprime and Alt-A securities in its portfolio. Freddie Mac is more at risk, with nearly $150 billion in the same securities.  Many are just waiting for the other shoe to drop.