Jan. 22 (Bloomberg) -- Fannie Mae and Freddie Mac, the two largest sources of money for U.S. home loans, may need to recognize $16 billion in losses in fourth-quarter earnings and capital levels because of declines in the value of subprime- mortgage bonds, according to Credit Suisse Group.

The government-chartered companies' earnings and capital haven't yet been hurt by declines in the $230 billion of AAA rated ``non-agency'' mortgage-backed bonds they hold, according to New York-based analysts Moshe Orenbuch and Kerry Hueston. The companies last year sold $13 billion of preferred shares and cut dividends to preserve capital after quarterly losses that stemmed in part from rising homeowner defaults.

With other financial companies this quarter already reporting ``other than temporary impairments'' of mortgage- related holdings that they wouldn't normally need to report under accounting rules, Fannie Mae and Freddie Mac may need to follow suit, the analysts wrote in a report today.

``We believe that this will likely spur the GSEs' regulator to compel similar actions,'' they wrote, referring to the Office of Federal Housing Enterprise Oversight, regulator to the so- called government-sponsored enterprises.

McLean, Virginia-based Freddie Mac's subprime securities may be worth $8 billion to $11 billion less than the prices at which the company is carrying them on its books, while Washington-based Fannie Mae's bonds may be worth $2.25 billion to $5 billion less, according to Credit Suisse.

Book Values

Without ``other than temporary'' impairments, or declines in the value of the securities unlikely to be recovered, the losses don't affect the companies' earnings or capital, the analysts wrote.

The losses would affect the book values, or their assets minus liabilities, the companies reported, they wrote. Through September of last year, the companies had only reported 1.5 percent declines in their value of their subprime securities, through adjustments to their book values, they wrote.

The potential losses don't reflect the companies' holdings of securities backed by Alt A mortgages, or loans considered between subprime and prime in terms of default risks, the analysts wrote. Non-agency mortgage securities are ones not guaranteed by the two companies or federal agency Ginnie Mae.

Brian Faith, a Fannie Mae spokesman, and Sharon McHale, a Freddie Mac spokeswoman, didn't return calls for comment today after business hours.

Bonds Tumble

Subprime mortgages were given to borrowers with poor credit or high debt. Based on benchmark ABX derivative indexes, the AAA rated bond created in securitizations of subprime loans in the first half of last year would trade at 68.49 cents per dollar of principal. The AAA ABX indexes indicate the prices for the type of AAA subprime securities that are last to repaid by principal pay downs, refinancing or foreclosure recoveries.

Congress created Fannie Mae and Freddie Mac to expand homeownership by increasing mortgage financing and to provide market stability. The companies make money by holding mortgage assets and on guarantees of mortgage-backed securities they create out of loans from lenders.

The companies last year announced changes to the prices they pay for mortgages or charge for guarantees on bonds backed by them that may raise costs to borrowers.

To contact the reporter on this story: Jody Shenn in New York at jshenn@bloomberg.net.

Last Updated: January 22, 2008 18:46 EST