While the Wall Street reform bill passed this summer did not directly address the GSEs, it nonetheless affected future prospects for restructuring Fannie Mae and Freddie Mac. As I wrote last month, the bill created a series of impediments to any timely revival of the private-label MBS market, making the housing markets highly dependent on agency-backed funding. As a result, GSE reform will be limited by the need to avoid short-term disruptions that would freeze financing for the housing markets.

A timely report recently released by the Federal Housing Finance Agency on the Enterprises' Financial Condition is useful in understanding their components. The report stated that the single-family guaranty business (the business line most central to their activities) accounted for 73% of the $226 billion in combined capital reductions for Freddie and Fannie since the end of 2007. This means that the majority of losses taken by the GSEs stemmed from their core activity of providing loan guaranties and not from their retained portfolios. Also notable was the composition of the guaranteed loans resulting in losses. While "nontraditional" loans accounted for a "disproportionate share" of the credit losses, losses on "conventional" loans were nonetheless significant, accounting for roughly one-third of the roughly $166 billion in capital reductions.

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