WASHINGTON—Fannie Mae and Freddie Mac would need a bailout of up to $99.6 billion under the worst-case economic scenario, according to the Federal Housing Finance Agency’s annual stress tests of government-sponsored enterprises.
The report indicates that the GSEs would need incremental Treasury Department draws of between $34.8 billion and $99.6 billion under the “severely adverse” scenario.
“As of December 31, 2016 the Enterprises had drawn a combined $187.5 billion from the Department of the Treasury under the terms of the Senior Preferred Stock Purchase Agreements (PSPAs), and the combined remaining funding commitment under the PSPAs was $258.1 billion. In the Severely Adverse scenario, incremental Treasury draws are projected to range between $34.8 billion and $99.6 billion depending on the treatment of deferred tax assets. The remaining funding commitment under the PSPAs after the projected draws is $223.2 billion, without establishing valuation allowances on deferred tax assets. Assuming both Enterprises establish valuation allowances on deferred tax assets, the remaining funding commitment is $158.4 billion,” the report stated.
“The Dodd-Frank Act requires that stress tests be performed annually in order to determine if the GSEs have enough capital to absorb losses in the case of bad economic conditions. The hypothetical ‘severely adverse’ scenario envisions a severe global recession accompanied by large reductions in asset prices, widening of corporate bond spreads, increased investor risk aversion and strained market liquidity conditions,” noted NAFCU.
The GSEs have been under FHFA conservatorship since 2008.