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, may 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 in a July 22 report that Fannie and Freddie may need to write down the value of $217 billion in subprime and other risky 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 55 cents a share, the average estimate of 10 analysts surveyed by Bloomberg. Fannie, led by Daniel Mudd, 49, may post a loss of 75 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 has tumbled 76 percent this year on the New York Stock Exchange, while Fannie fell 66 percent on concern that 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 closed up 52 cents, or 6.9 percent, to $8.04 today. Fannie climbed $1.77, or 15 percent, to $13.60.

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.

Miller's team said today that Freddie will report second- quarter net income of 50 cents a share -- instead of a loss of 63 cents as previously forecast -- because an increase in interest rates boosted the value of some assets.

Rising interest rates increased the value of Freddie's guarantees on mortgage bonds and interest-rate derivatives used as hedges for its holdings, the analysts led by Miller said in a report today. Higher fees on new insurance and a rise in the profitability of its portfolio will also help offset losses related to the record surge in U.S. foreclosures, they wrote.

Deep Discount

Gains from revaluations won't ``be sustainable in the long term,'' the analysts wrote.

Fannie Mae and Freddie Mac have taken few losses so far on their $314 billion portfolio of securities backed by private lenders -- about $217 billion of which was secured by subprime and Alt-A mortgages at the end of the year, their regulator said.

The value of these so-called non-agency securities is falling as other financial firms write down their holdings, the Office of Federal Housing Enterprise Oversight said in its annual mortgage market report last month.

``If they had to sell those securities, they'd have to sell them at a deep discount,'' Miller said, adding that Ofheo isn't likely to force the writedowns. ``Given the situation that they're in, the government isn't going to make them write those assets down because that could breach the confidence out there and cause the companies to really go into a tailspin.''

New Deal

In addition, Fannie will lose $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.

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.

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.

Ignoring the Losses

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.

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 16:22 EDT