Fannie and Freddie to US: Hey, if things don’t work out can I have $100B?

Report shows needed bailouts in case of crash

FHFA Director Melvin Watt
FHFA Director Melvin Watt

If the market collapses, Fannie Mae and Freddie Mac may be in a pretty big bind: They’ll need a nearly $100 billion bailout.

According to a stress-test report by Federal Housing Finance Agency, the companies will need between $34.8 and $99.6 billion from the U.S. Treasury, depending on how assets are treated to offset taxes, Bloomberg reported. Under Dodd-Frank, major financial companies are required to undergo annual tests to see how they would fare in the event of a major recession.

The terms of the companies’ current bailout agreement require that they give the Treasury nearly all profits in the form of dividend payments. The companies can each retain $600 million for now, but later this year, that buffer will fall to zero.

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Still, the companies also have $258 billion in taxpayer funding available. FHFA Director Mel Watt, however, has said that it’s unclear how the mortgage bond market will react if that funding is depleted.

In 2008, the government took over Fannie and Freddie, providing $187.5 billion in bailout money.

Previous reports actually projected higher bailouts. In 2015, the FHFA estimated that the companies would need $157.3 billion. In 2016, the agency projected the government would need to inject $126 billion.

In June, two senators were exploring a plan that would split Fannie and Freddie into single-family and multifamily parts.  [Bloomberg] — Kathryn Brenzel