The Federal Housing Finance Agency, the regulator for Fannie Mae, Freddie Mac, and the 12 Federal Home Loan Banks, has published its first Conservators’ Report on the Enterprises’ Financial Condition. Future reports will be issued on a quarterly basis.

Among the findings of the report:

• At the end of 2007, Fannie and Freddie held $71 billion in capital
• From the end of 2007 to the beginning of 2010, GSE capital was reduced by $226 billion
  • 73% of the reduction was due to the Single-Family Credit Guarantee program
  • Only 9% of the losses were due the Investments and Capital Market section
    • These losses were due to downgrades of private-label securities, derivatives and other securities

These numbers challenge the conventional wisdom that the financial crisis faced by Fannie and Freddie was a result of risky investments.  Instead 73% of losses were due the GSEs’ role as a guarantor of conforming mortgages.  At the peak of the market, Fannie and Freddie guaranteed more than $4 trillion of mortgage debt.

To give a sense of proportion, for 2007 Freddie Mac had a total mortgage portfolio of $2.1 trillion, with a retained portfolio of $721 billion.  Fannie Mae for the same period had a total mortgage portfolio of $3.2 trillion, with a retained portfolio of $721 billion.  This makes a total retained portfolio of about $1.5 trillion out of $5.3 trillion or 28%, while accruing 9% of total losses.

It is also worth noting that Fannie Mae and Freddie Mac will in 2010 pay $15 billion to the Department of Treasury as a dividend on its preferred senior stock, a rate of 10%.  This is twice the initial TARP dividend rate for banks, which begins at 5% and increases to 9% after the 5^th year of TARP program participation. 

Loans originated in California, Florida, Arizona and Nevada accounted for 57% of the single-family related losses for Fannie Mae (27% of total loans guaranteed) and 61% for Freddie Mac (25% of loans guaranteed).

Fannie Mae and Freddie Mac also reported 448,000 loans in the trial period of the HAMP program.