Fannie and Freddie could need $100 billion bailout in next crisis, stress test finds

[WestVirginiaRebel]

Market Watch

Fannie Mae and Freddie Mac could need a taxpayer bailout of as much as $99.6 billion if a severe economic downturn gripped the U.S., their regulator said Monday.

The Federal Housing Finance Agency released the results of a stress test that examined how the mortgage finance companies would perform in what’s called a “severely adverse scenario.” The stress test was mandated by the post-financial-crisis Dodd-Frank Act and the specifics of the scenario were devised by the Federal Reserve.

The test found that Fannie FNMA, +2.61%   and Freddie FMCC, +3.16%   together would require between $34.8 and $99.6 billion, FHFA said. That’s an improvement from last year, when FHFA said the enterprises would need $125.8 billion.

Also read: Congress wouldn’t do it, so Fannie and Freddie reformed themselves

The two government-sponsored enterprises have operated under federal conservatorship since the 2008 crisis. In 2010, the Obama administration amended that 2008 agreement to require that Fannie and Freddie send all their profits to the Treasury and draw down remaining capital buffers until they reach zero in 2018.

Depending on the accounting treatment of certain deferred tax assets both companies hold, they would be able to tap between $158.4 and $223.2 billion in the “severely adverse scenario” imagined.

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Too failed to bail?