Aug. 8 (Bloomberg) -- Fannie Mae's initial attempts to restore delinquent homeowners to on-time payments with unsecured second loans failed 41 percent of the time.

The company purchased 17,901, or $127 million, of ``HomeSaver Advance'' loans through June 30 after it started five months ago to offer the debt to cover borrowers' missed payments, according to a filing with the Securities and Exchange Commission today. Of the loans made through May 30, 59 percent resulted in associated mortgages being current on June 30, the filing said.

Fannie, the mortgage-finance company that today reported its fourth straight quarterly loss, is using the HomeSaver loans and joining industry efforts to rework borrowers' mortgages to cut foreclosures amid the U.S. housing slump. Critics such as former St. Louis Federal Reserve President William Poole say the program increases Washington-based Fannie's risks and hides its true financial condition from investors.

``This whole mortgage modification business, and HomeSaver fits into it, remind me of a wonderful saying back in the '80s during the S&L mess: `A rolling loan gathers no loss,''' Bert Ely of Ely & Co., a bank consulting firm in Alexandria, Virginia, said today. ``All of this stuff falls into the same category of, sometimes it will work, but a lot of times it won't.''

Second-Quarter Loss

The government-chartered company's second-quarter loss of $2.3 billion included $5.3 billion in credit-related expenses. Those included $114 million of losses from writing down the value of the HomeSaver loans, which are granted in amounts as large as the lesser of $15,000 or 15 percent of a borrower's mortgage, and have terms of 15 years.

The HomeSaver ``initiative lets us get to delinquent borrowers sooner with the goal of getting them back on a current payment track,'' Chief Financial Officer Stephen M. Swad said on a conference call in May.

The loans can be made before consumers' mortgages can be modified under contracts for the Fannie-guaranteed securities they back, the filing said. The HomeSaver loans enable Fannie to avoid buying as many troubled mortgages out of the securities and writing down the value of that debt, according to the company.

``I'm shocked and I'm surprised that the regulator permits it,'' Poole said in an interview in June. ``That just covers up the fact that they are in arrears and Fannie ought to reserve against them. I thought that was a strict no, no.''

The Office of Federal Housing Enterprise Oversight, the company's regulator, said last month that it has reviewed the program and related accounting and didn't object.

``This program is the type of creative measure needed to help prevent foreclosures, which hurt homeowners and their communities,'' Director James Lockhart said in an e-mail.

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

Last Updated: August 8, 2008 16:25 EDT