Analysts at investment bank Keefe, Bruyette & Woods said both Fannie Mae and Freddie Mac have enough in reserves to absorb losses from legacy portfolios and that market estimates of potential losses are "overly pessimistic." While KBW said the losses will be lower than expected, the firm still believes the government will wind down the structure of Fannie Mae and Freddie Mac. In the third quarter, Fannie reported $3.5 billion in losses, including a $2.1 billion dividend payment the Treasury Department, while Freddie posted $2.5 billion in losses. In the third quarter of last year, Fannie lost $19 billion, and Freddie lost $5 billion. KBW estimates roughly $200 billion in cumulative losses at Fannie and Freddie, down from the $400 billion most in the market are suggesting. Another investment bank Credit Suisse estimated a $321 billion loss in its base-case scenario. While delinquency rates are on the way down, loss reserves have held steady as the amount on non-performing assets remain high. Fannie reported $213.4 billion in those assets, and $121 billion at Freddie. KBW has long said the GSEs may be undercapitalized but have enough in reserves for those losses. Coming out of the third quarter, the government's investment in Fannie Mae increased to $88.6 billion and $64.2 billion for Freddie. With a 10% interest rate on the debt, the government can expect just over $15 billion a year in dividend payments from the GSEs. "We believe the current structure of the GSEs will eventually be wound down, wiping out current shareholders but we expect the government to find a home for the core guarantee business," according to KBW. Write to Jon Prior.