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 The Federal Housing Finance Agency, which oversees the two
taxpayer-owned companies, offered the estimate as the worst-case
scenario in an analysis modeled on the stress tests conducted on the
nation's biggest banks. The analysis relies heavily on U.S. home
price projections.
The stress tests, required by the Dodd-Frank Act, are designed to
show if regulated entities have enough capital to weather a
financial collapse similar to the 2007-2009 crisis.
A worst-case scenario would require total aid ranging from $84.4
billion to $190.0 billion, depending on certain accounting
assumptions, for the two companies through 2015. So far, Fannie Mae
and Freddie Mac have drawn $187.5 billion in bailout funds, while
returning $202.9 billion in dividends to the U.S. Treasury after
posting record profits.
"It is important to remember that the stress test results are
modeled projections based on hypothetical economic conditions
prescribed by FHFA," said Freddie Mac spokesman Tom Fitzgerald.
"Actual outcomes may be very different."
Under their bailout agreement with the government, Fannie Mae and
Freddie Mac must sweep their profits into the Treasury and cannot
rebuild capital that would cushion any sudden shock to the financial
system.
Regulators took control of Fannie Mae and Freddie Mac in 2008 after
losses stemming from subprime mortgage investments pushed them to
the brink of insolvency.
"These results of the severely adverse scenario are not surprising
given the company's limited capital," Fannie Mae Senior Vice
President Kelli Parsons said in a statement.
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The two largest suppliers of mortgage funds are operating under
conservatorship while Congress considers an overhaul of the
mortgage-finance system. The Senate is considering taking action to
wind down the two taxpayer-owned companies, but the measure faces an
uncertain future.
Fannie Mae posted earnings of $84 billion for 2013, and Freddie
Mac reported a profit of $48.7 billion, both setting records.
Executives of both companies have said they expect to see some
profitable quarters in the future.
"The system today continues a flawed dynamic where taxpayers must
support future losses at Fannie Mae and Freddie Mac should there be
another downturn in home prices," Treasury Secretary Jack Lew told a
congressional committee on Tuesday.
"We need to start reform now," Lew said, "and we need legislation to
achieve the fundamental reforms that protect both consumers and
taxpayers."
Fannie Mae and Freddie Mac own or guarantee about 60 percent of all
U.S. home loans.
(Editing by Bernadette Baum and Lisa Von Ahn)
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