Aug. 5 (Bloomberg) -- Fannie Mae and Freddie Mac, the biggest U.S. mortgage-finance companies, may report net losses through the first quarter of 2009 as home-loan delinquencies rise to the highest on record, analysts' estimates show.

Freddie, based in McLean, Virginia, probably will say tomorrow when it releases second-quarter results that it had $1.9 billion in credit-related costs, while Washington-based Fannie on Aug. 8 will report $2.4 billion, according to Credit Suisse analyst Moshe Orenbuch in New York. The companies' regulator said July 22 that Fannie and Freddie may need to write down the value of $217 billion in securities.

``We see them continuing to lose money for the next several quarters,'' said Orenbuch, the top-ranked analyst covering the companies, according to Institutional Investor magazine. He rates Fannie and Freddie ``underperform.'' ``Their credit losses are still going to be stubbornly high and that's only partially offset by the better revenues'' for guaranteeing loans from default, he said in an interview.

Freddie, led by 64-year-old Chief Executive Officer Richard Syron, will likely report a quarterly loss of about $388 million, or 60 cents a share, the average estimate of 11 analysts surveyed by Bloomberg. Fannie, led by CEO Daniel Mudd, 49, may post a loss of about $763 million, or 74 cents, the estimates show.

Earnings Forecasts

Freddie will continue to lose money through the second quarter of 2009, while Fannie's losses will extend through the first three months of next year, according to the analysts. Freddie spokesman Michael Cosgrove declined to comment before the earnings report, as did Fannie spokesman Jason Lobo.

The New York Times reported today that Syron ignored internal warnings that Freddie was taking on excessive risk. Syron was told as early as 2004 by David Andrukonis, who was then chief risk officer, that the company was buying dangerous loans, the newspaper said, citing an interview with Andrukonis.

Freddie tumbled 78 percent this year to $7.52 on the New York Stock Exchange, while Fannie plunged 70 percent to $11.83 on concern the companies, which own or guarantee 42 percent of the $12.1 trillion in U.S. home loans outstanding, may not have enough capital to survive the deepest housing slump since the Great Depression. Freddie shares rose 4 percent to $7.84 in Frankfurt at 11:32 a.m. Fannie rose 2.5 percent to $12.13.

U.S. Treasury Secretary Henry Paulson announced a rescue plan on July 13, saying he would seek authority to buy unlimited equity stakes in the companies and their bonds if needed, while the Federal Reserve would lend directly to Fannie and Freddie. Congress included the proposals in a broader housing bill that President George W. Bush signed into law last week.

Fair Value

Fannie recorded $7.1 billion in losses the previous three quarters. Freddie posted $4.6 billion, after accounting changes allowed it to avoid at least $2.6 billion more, Chief Financial Officer Anthony Piszel said in a May 14 interview.

Freddie owed $5.2 billion more than its assets were worth in the first quarter, making it insolvent under fair-value accounting. Fannie's assets were valued at $12.2 billion more than its liabilities.

``There's a lot of pressure on them to come out with a good number,'' said Paul Miller, an analyst at Friedman, Billings, Ramsey & Co. in Arlington, Virginia.

Fannie will lose an additional $45 billion and Freddie $30 billion on mortgage defaults over the next two to three years, and each may need to raise $15 billion in capital, Miller said.

There are few signs that the housing market has bottomed. The S&P/Case-Shiller home-price index dropped 15.8 percent in May from a year earlier, the biggest decline since records began seven years ago. Some 6.35 percent of home loans had at least one payment overdue as of the end of March, up from 4.84 percent a year earlier and the highest since at least 1979, the Washington- based Mortgage Bankers Association said June 5.

New Deal

Fannie was created as part of Franklin D. Roosevelt's New Deal in the 1930s, a time when the U.S. economy was struggling to emerge from the stock market crash, industrial production had tumbled 50 percent and the unemployment rate rose as high as 30 percent. Freddie started in 1970, when the economy was strained by the Vietnam War.

Both have the implicit guarantee of the government, so they can borrow at lower rates than banks and make money by purchasing higher-yielding mortgages from home lenders, providing capital for loans. They also guarantee loans from default for a fee.

Freddie lost $151 million last quarter, and earned $764 million in the three months ended June 30, 2007. Fannie lost $2.19 billion in the first months of the year, and had net income of $1.95 billion in the second quarter of 2007.

Ignoring the Losses

Freddie has yet to write down the value of $150 billion in privately issued subprime, Alt-A, option adjustable-rate mortgages and home-equity loan securities because the company considers those losses ``temporary'' and expects to recover the full investment when the debt matures, according to Orenbuch. That could lead to potential losses of $24 billion more, he said. Non-agency, or private-label, mortgage securities, lack guarantees from Fannie and Freddie or U.S. agency Ginnie Mae.

``A lot of people ignored these unrealized losses in their entirety for several quarters, the question is whether investors can continue to ignore these losses,'' Orenbuch said.

To contact the reporter on this story: Dawn Kopecki in Washington at dkopecki@bloomberg.net.

Last Updated: August 5, 2008 08:36 EDT