Mr Megie still couldn't sell it. "There's oversupply,'' he said. The home sold in 2005 for $110,000.

Together, Fannie and Freddie Mac, the two biggest US mortgage finance companies, owned a record $6.9bn of foreclosed homes on March 31, compared with $8.56bn held by all 8,500 US commercial banks and savings and loans.

Foreclosed houses sell at an average discount of about 20pc, according to economists Ethan Harris and Michelle Meyer at New York-based Lehman Brothers Holdings Inc. At that rate, the two mortgage companies stand to lose $1.39bn on the foreclosed houses they currently own.

"It's a no-win for the housing market,'' said Ron Peltier, chief executive officer of Berkshire Hathaway Inc's HomeServices of America Inc, the second-largest US residential real estate brokerage. "Where there are pockets of distressed real estate, it does have an adverse effect on the surrounding properties."

The home on Prospect Street in Flint needs a new roof and carpeting and the plumbing has been ripped out, said Mr Megie, who sells Fannie Mae-owned homes. "Two years ago, I didn't have any Fannie Mae properties and now it's probably pushing 50pc of what I have listed,'' Mr Megie said. Fannie Mae is fixing vandalised homes instead of "just dumping them to investors", he said.

Bruce Norris, a builder and real-estate investor in Riverside, California, estimates about 15pc of foreclosed houses have been intentionally damaged. "Banks can't fix all the homes because they just have too many,'' he said.

The longer it takes to sell a house, the lower the profit will be, said Dean C Williams, chief executive officer of Williams & Williams Worldwide Real Estate Auction in Tulsa, Oklahoma. It costs creditors such as Fannie Mae 2pc of the value of the property every month in taxes, insurance, utilities, lost revenue, maintenance, management and cleanup after vandalism, Mr Williams estimates.

"This problem is not just how it affects the credit markets, it's how it affects neighbourhoods," Mr Williams said. "We use the word 'blight'. It becomes a reinforcing vicious circle in terms of the value of ownership. Now the value of ownership is increasingly a negative return."

Freddie Mac's inventory of foreclosed homes is also rising. The value of single-family properties that Freddie Mac held in the first quarter rose to $2.2bn from $871m a year earlier, according to a regulatory filing.

The company acquired 9,939 homes in the quarter, sold 5,914 and owned 18,419 properties at the end of March.

Freddie Mac-owned properties spend an average of 152 days on the market and typically sell for 92pc of the listed price -- which is usually about 30pc less than the peak prices of 2006, said Ingrid Beckles, vice president of servicing and asset management.

Part of the difficulty for all owners of foreclosed property, and not just Fannie Mae, is a shortage of qualified agents in the field who can sell the homes efficiently, said Jesse Ramirez, a broker associate at Re/Max Partners Real Estate in Corona, California.

Overwhelmed

"They are all recent college grads without experience," Mr Ramirez said. "They have 300 files each and they're overwhelmed. They don't understand how the typical transaction goes. These people didn't have jobs two years ago, not doing this.''

Fannie Mae, founded as part of President Franklin D Roosevelt's plan to resuscitate the US economy in 1938, and Freddie Mac, started in 1970, were chartered by Congress. They bundle home loans into securities to sell to investors and use cash from the sales to fund mortgage lenders. Together, Fannie Mae and Freddie Mac own or guarantee about half of the $12trn of mortgages in the US.

Securitisation of residential mortgages by underwriters outside of Fannie Mae and Freddie Mac has almost stopped. Banks bundled $1.15trn of home loans into so-called private-label securities in 2006, Inside Mortgage Finance reported.

The number fell to $46bn in the first half of 2008, according to the Bethesda, Maryland-based industry publication.

The two government-sponsored enterprises own or guarantee 81pc of US mortgages originated this year, data compiled by the Washington-based Office of Federal Housing Enterprise Oversight show.

The company acquired 9,939 homes in the quarter, sold 5,914 and owned 18,419 properties at the end of March. (Bloomberg)