Credit losses at government-backed lenders Fannie Mae and Freddie Mac will likely increase rapidly this year and exceed a peak last seen in the early 1990s, Goldman Sachs said today.
“We expect government-sponsored enterprise credit costs to increase throughout 2008, and remain at elevated levels to 2010 and perhaps beyond,” analyst James Fotheringham said in a note to clients.
The credit losses will likely be most severe for mortgages backed by homes in “speculator states” such as California, Florida, Arizona and Nevada, he said.
The risk from operations in these four states has yet to be fully realized, Fotheringham said, because while 25 percent of Fannie Mae and Freddie Mac’s business comes from these states, they only accounted for 15 percent of 2007 credit costs.
That number that is expected to rise “significantly,” he said, as he kept a “Sell” rating on both companies.
Credit losses at the two companies this year will likely total 0.16 percent, exceeding a peak of 0.12 percent to 0.13 percent reported in 1991, Fannie Mae’s guidance for 0.11 percent to 0.15 percent and Freddie Mac’s 0.12 percent, he said.
“Losses this cycle should be higher than those reported for previous cycles given the riskier portfolio mix, and a broader (national) housing predicament,” he said.
