The FHFA said on Thursday that Federal Home Loan Mortgage Corp (OTCBB:FMCC) along with Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) would need bailout of up to $157.3 billion in the event of a financial crisis. The statement came after the stress test that is directed from the 2010 Dodd Frank Act. The test indicated in case of a sharp recession, the government would need to step up again with taxpayer aid to stabilize Freddie and Fannie.
In the released report, the FHFA stated Federal Home and Fannie Mae can face the shortfall anywhere between $68.6 billion and $157.3 billion, depending on treatment of deferred tax assets as created by losses in event of the downturn. The agency terms it as a ‘severely adverse scenario’ which covers a extended recession. It report, it is explained as a period when unemployment is expected to jump to 10% by 2016 and real GDP declines 4.5%.
In the probable scenario, the yields on the ten-year Treasury ‘Note’ will decline to 1% and credit spreads will extend by 170 basis points on investment grade bonds. Also, the home prices decline by as much as 25% and the equity prices plunge 60% peak-to-trough.
Federal National would require Treasury bailout anywhere in a range of $34.2 billion to $94.9 billion, while Federal Home would need bailout in a range of $34.4 billion to $62.3 billion. Federal National shares gained 0.74% to close Thursday’s trading session on $2.71. The gains came at a share volume of 7.27 million compared to share volume of 4.77 million.
In last trading session, the share price of Federal Home gained 1.95% to close the trading session at $2.62. The up move came at a share volume of 3.94 million compared to average volume of 2.42 million. In past one year, the shares of Fannie Mae and Freddie Mac have declined more than 28% and 31%, respectively.