WASHINGTON (8/27/10)--The credit quality of the mortgages acquired by Fannie Mae and Freddie Mac has “improved substantially” since Fannie and Freddie were taken under government conservatorship, the Federal Housing Finance Agency (FHFA) reported on Thursday. Both Fannie and Freddie were placed under government conservatorship in 2008. In its Conservator’s Report on the Enterprises’ Financial Condition, the FHFA noted that the single-family mortgages that Fannie and Freddie have acquired during this period “have, on average, higher credit scores and lower loan-to-value ratios, resulting in lower early cumulative default rates.” The report, which will be released quarterly, also addresses the sources of Fannie and Freddie’s losses, related capital reductions, their loss mitigation activities, and other mortgage market information. According to the report, Fannie and Freddie’s investments and capital markets business segment was responsible for 9% of the total capital reductions realized between the end of 2007 and the second quarter of 2010. Their single-family credit guarantee business segment accounted for 73% of the capital losses realized during that same period. In a recent panel discussion, U.S. Treasury Secretary Timothy Geithner said that the federal government must adjust the housing finance system to eliminate the conflict between Freddie Mac's and Fannie Mae's public policy role and the need to enhance shareholder returns. Reps. Paul Kanjorski (D-Pa.) and Barney Frank (D-Mass.) have scheduled a slate of housing finance hearings for September, and Kanjorski has said that policies related to calculating guarantee fees and ideas for recovering the costs associated with Fannie and Freddie’s conservatorship will be discussed. For the full FHFA release, use the resource link.