In the market’s view, Fannie Mae and Freddie Mac may not have enough capital to offset losses and maintain their roles as the engines of the
Freddie Mac, which in May boosted its forecast for total credit losses in 2008 to 16 basis points or 0.16 percent of their total mortgage book, from 12 basis points, plans to report second-quarter results on Wednesday.
Fannie Mae in May ratcheted up its expectation for its 2008 credit loss ratio to 13 to 17 basis points, at least double its historical range, from a prior estimate of 11 to 15 basis points to 15 basis points. Upward revisions to loss forecasts may reignite scrutiny over whether the companies can contain their losses and meet political pressure to expand their support for the housing market. Fannie Mae and Freddie Mac have said they have enough capital and their regulator, OFHEO, affirmed their statements.
The pressure of credit downgrades for companies follows, and in turn may encourage, falling home prices. Fannie Mae has about $70 billion in subprime and Alt-A securities in its portfolio.