Subprime concerns continued to weigh on the market today after Citigroup analysts estimated that Fannie Mae and Freddie Mac would suffer a loss of $4.7 billion loss in value as a result of declining subprime mortgage valuations. Soon after, a Freddie Mac spokeswoman countered, saying the analysts were "mistaken" and that the groups haven't seen "any material markdown of value". Clearly there are some major reasons for concern here, but investors remain uncertain as to whether or not the groups will be able to ride out the storm.

The Citigroup report indicated that Fannie Mae's subprime holdings have dropped $1.5 billion - or 2.5% of the company's value. Meanwhile, Freddie's holdings dropped $3.2 billion - or 8% of the company's value. However, since these are bonds that are not going to be forced into liquidation, the actual impact on the company's values are lessened. And in the end, these billions hardly make a huge dent on the $1.4 trillion in loans that they have outstanding.

The two government companies, which buy and package home loans, have thus far avoided substantial damages from subprime loan defaults. The two companies have a combined $182 billion in backed subprime loans, however, the vast majority of these loans remain AAA rated. While Freddie and Fannie do not guarantee these loans, the companies will certainly be damaged if defaults continue as they have in recent weeks.

In the end, this is definitely a situation that is worth watching. These two companies carry a lot of weight in the mortgage market as they are backed by the government. The subprime problem is far from over and may take until 2009 to resolve according to some industry executives. In the meantime, it is important to keep an eye on default rates in order to make sure the problem doesn't spread significantly and cause further selloffs in other sectors.