The situation might have improved but has not completely erased the danger for Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Federal Home Loan Mortgage Corp (OTCBB:FMCC). The Wall Street Journal reported that in an event of a severe economic crisis, the two government sponsored entities (GSEs) will need as much as $157.3 billion from the Treasury in order to survive.
Results show capital inadequacy
The stated need came as the Federal Housing Finance Agency (FHFA) delivered the stress test results of the two housing companies. The stress test is conducted in accordance with the Dodd-Frank financial regulation, where the strength of the financial institutions are evaluated under a hypothetical situation.
The regulatory body mentioned in its report that Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac maintain a limited capital base and are not allowed to build one as per the bailout terms. Thus, the lack of sufficeint capital may throw a burden of $157 billion on the taxpayers if the financial crisis emerges.
The results will clearly fuel the demand that the two housing companies should be allowed to build capital. Since the last few months, representatives of Congress have already started emphasizing on the need of the two companies to start rebuilding their capital base. However, these calls were suppressed by Treasury officials, who feel that Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac have enough money with them to sustain their operations.
The GSEs were put under government conservatorship in 2008, mandating them to direct all of their profits back to the Treasury. Moreover, the bailout agreement restricted the companies to build capital, requiring them to reduce their capital base by $600 million each year until it becomes zero in 2018. Both the companies are not surprised with the results given the restrictions imposed on their capital building capacity.
The stock of Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) was up by 3.19% to $2.91 on Monday as 4.42 million changed hands during the day.