Fannie Mae and Freddie Mac would require up to $157.3 billion in
additional support from the U.S. Treasury in a severe economic
downturn, according to the result of stress tests released on
Thursday by the Federal Housing Finance Agency.
The tests, required by the Dodd-Frank financial-regulatory
overhaul, are designed by the Federal Reserve to simulate a severe
recession, in which the unemployment rate rises to 10% by mid-2016
and real gross-domestic product falls 4.5% by the end of 2015
before beginning to recover. The projections aren't meant to be
"expected outcomes," the agency said.
Fannie and Freddie were put under government control in 2008,
eventually requiring infusions totaling almost $188 billion from
the U.S. Treasury, before the companies started turning a profit
again. Under an agreement between the FHFA and the U.S. Treasury
Department, the companies still have more than $258 billion in
funding to draw from.
The same agreement requires that Fannie and Freddie send nearly
all of their profits to the U.S. Treasury in the form of dividends
and for the companies to reduce their capital reserves by $600
million a year, eventually reaching zero in 2018. In 2015, the
companies each have a reserve of $1.8 billion.
According to the test results, even in a severe downturn the
companies would have remaining funding to draw from the U.S.
Treasury. Depending on how the companies are allowed to treat
certain tax assets, the required draw could bet between $68.6
billion and $157.3 billion, according to the test.
Write to Joe Light at joe.light@wsj.com
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