FHFA Reports on GSE Stress Tests

The Federal Housing Finance Agency (FHFA) has released a report providing updated information on possible ranges of future financial results of Fannie Mae and Freddie Mac under specified scenarios. The report, Projections of the Enterprises’ Financial Performance, reflects results of stress tests Fannie Mae and Freddie Mac are required to conduct, starting this year, under the Dodd-Frank Wall Street Reform and Consumer Protection Act. The stress tests are designed to determine whether Fannie Mae and Freddie Mac could absorb losses as a result of adverse economic conditions. The report also contains the results of annual financial results projections that FHFA has published since 2010 (the “FHFA scenarios”). The FHFA scenarios reflect forward-looking financial projections across three possible house price paths and were developed in conjunction with Fannie Mae and Freddie Mac.  Next year, only the Dodd-Frank Act Stress Tests will be required. The Financial Services Roundtable (FSR) has expressed concern after stress test results showed that Fannie Mae and Freddie Mac could potentially cost the American taxpayers as much as $190 billion if the economy takes a severe downturn. “These staggering figures reinforce the urgent need to replace Fannie and Freddie with a system backed by the private market,” said FSR CEO Tim Pawlenty. “Keeping taxpayers 100 percent financially responsible is no longer tolerable.” The FHFA report shows that under severe economic scenarios, the GSEs could require anywhere from $84.4 billion to $190 billion in additional taxpayer funds beyond the $187.5 billion already drained from the American people since Fannie and Freddie collapsed in September 2008. Currently, taxpayers are financially responsible for supporting Fannie and Freddie if the market collapses.