Fannie, Freddie may tap U.S. Treasury for $45 bln

NEW YORK Jan 26 (Reuters) - Fannie Mae and Freddie Mac could tap the government for about $45 billion in coming weeks so they can continue to operate as the largest providers of funding for U.S. residential mortgages.

The storm of rising delinquencies and falling securities values that led to the government's seizure of the companies in September accelerated in the last quarter, requiring Fannie Mae and Freddie Mac to seek more of the stop-gap measures organized by the U.S. Treasury and their regulator.

Fresh losses in the most recent quarter will probably be the harshest on Freddie Mac FRE.P, which holds a larger portfolio of risky mortgage securities, including subprime bonds. The McLean, Virginia-based company said late Friday it may have to seek up to $35 billion in capital from the Treasury in the form of senior preferred stock.

Expectations of larger losses underscore the importance of the Obama administration's measures to halt foreclosures that are feeding a downward spiral in the housing market, already in its worst downturn since the Great Depression. Until the declines in house prices are broken, the cycle will continue and the economic recession could get worse, economists have said.

Fannie Mae FNM.P, Freddie's larger rival, will probably need $5 billion to $10 billion to maintain its net worth as of Dec. 31, but it is more exposed to losses throughout 2009 from its other business of guaranteeing loans in mortgage-backed securities, according to analysts, including Rajiv Setia of Barclays Capital in New York.

"Since Fannie Mae doesn't really have as large a 'non-agency' mortgage-backed portfolio as Freddie Mac, the impact of the markdowns will likely be lower" last quarter, Setia said in an e-mail. "However, losses from the guaranty book will likely be larger."

DANGER IN DERIVATIVES HEADWIND

Freddie Mac and Fannie Mae, based in Washington, have provisioned for just a third of cumulative losses on guarantees of $45 billion and $80 billion, respectively, he said.

The companies guarantee or own nearly half of all U.S. mortgages.

After taking about $14 billion from the Treasury last year, Freddie Mac would be using about half of its $100 billion Treasury lifeline. Other funding sources have shriveled in the credit crunch, enhancing the importance of liquidity from Freddie Mac, Fannie Mae and the 12 Federal Home Loan Banks, some of which are facing capital shortfalls of their own.

Fannie Mae and Freddie Mac are also fighting a headwind of unrealized losses on interest-rate derivatives they use to hedge their mortgage portfolio, Moshe Orenbuch, a strategist at Credit Suisse, said in a research note on Monday.

What's more, prospects of legislation that would make it easier for a bankruptcy judge to tear up mortgage contracts has hit the value of securities held by the companies, he said. That could add $20 billion to the Treasury's costs of buoying the companies, he added.

The value of holdings of "conventional" mortgages should provide some offset to losses elsewhere, analysts said. Growing portfolios also suggest rising interest income.

Treasury injections will likely keep the companies operating as government entities for years, as they struggle to service costs and provide money for U.S. housing, Setia said in a conference call last week. Before the conservatorships, Fannie Mae and Freddie Mac operated as quasi-governmental "agencies," where they relied on charters from Congress, but answered to shareholders. (Reporting by Al Yoon; Editing by Jan Paschal)