After yesterday's earnings it is clear that Fannie Mae at least--Freddie Mac is set to release its earnings later this week--will be out of funds by the end of the year. Whether, or in what form, it may receive additional support, though, is unclear. According to media accounts that quote anonymous sources, it appears that the Treasury Department is reluctant to revisit the terms of the conservatorship.

The terms of the conservatorship do not appear to be working for Fannie Mae, Peter Cohan, principal of the economic consulting firm Peter Cohan & Assoc., tells GlobeSt.com. "The limiting factor in its ability to continue to support the housing market is how much government money will go into the company. If it were a private company I doubt if investors would see much value in putting new money into it."

Essentially it is a political decision, he continues, and the fact that the Administration is poised to change hands may be part of the current uncertainty.

The agency, though, has all but said it will need a new cash infusion if it is to continue to operate. "If current trends in the housing and financial markets continue or worsen and we have a significant net loss in Q4 of 2008, we may have a negative net worth as of Dec. 31, 2008," it said in its earnings release. "If this were to occur, we would be required to obtain funding from Treasury pursuant to its commitment under the senior preferred stock purchase agreement in order to avoid a mandatory trigger of receivership under current statute."

A comment by S&P breaks down Fannie Mae's Q3 numbers to show why it agrees with this assessment:

• Fannie Mae's $29-billion loss is a result of a $21.4-billion non-cash tax-related charge;
• During the same time period last year, it registered a loss of $1.4 billion;
• The size of the tax-charge reflects the high degree of uncertainty surrounding Fannie Mae's earnings as it operates under conservatorship, according to S&P;
• Other significant charges in the quarter contributing to the "rather sizeable loss" include a $9.2-billion charge for credit-related expenses, which includes a $6.7-billion increase to the provision for credit losses, and fair-value losses of $3.9 billion.

These losses have severely worsened Fannie Mae's capital position, S&P concluded, noting that it ended the quarter with GAAP equity of $9.3 billion. For these reasons, "it is highly likely that Fannie Mae will access the US Treasury's senior preferred stock purchase program early next year."