Fannie-Freddie Might Need $100 Billion in New Crisis, FHFA Says

Bloomberg reports:

Mortgage-finance giants Fannie Mae and Freddie Mac could need nearly $100 billion in bailout money in the event of a new economic crisis, according to stress test results released Monday by their regulator.

The companies would need to draw between $34.8 billion and $99.6 billion in U.S. Treasury aid under a “severely adverse” scenario, depending on how they treated assets used to offset taxes, the Federal Housing Finance Agency said in its report. The losses would leave $158.4 billion to $223.2 billion available to the companies under their bailout agreements.

Fannie and Freddie, like other major financial companies, are required by the Dodd-Frank Act to face annual tests of their ability to withstand a major recession. The results are likely to be used both by proponents of letting the two companies build a larger capital buffer and by some policy makers who think such an effort isn’t needed.

The current terms of their bailout agreements require Fannie and Freddie to turn over nearly all profits to Treasury in the form of dividend payments. They are currently permitted to retain a capital buffer of $600 million apiece, and the level will fall to zero next year.

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