The latest financial “stress tests” results for Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Federal Home Loan Mortgage Corp (OTCBB:FMCC) are out, which are nothing but shocking. The results indicate that the two housing enterprises will need over $157 billion if the U.S. slips into another financial crisis. It is noteworthy that the two housing giants were resurrected in 2008 with the taxpayers money.
The results
The housing agency supervising the two enterprises, Federal Housing Finance Agency (FHFA) released the results last week. The results were part of the second annual stress tests under the 2010 law. In 2008, both Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie were infused with $187 billion of capital by the government. However, the two housing companies have been able to turn profitable since then and has repaid the said capital amount in full.
Breaking it down
Both Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac buy home mortgages from lenders and sell it to investors after guaranteeing payment in case of a default. The portfolio of the two companies nearly accounts $5 trillion at present. The FHFA’s stress test results show that under a case of a severe financial crisis, the two companies will need $68.6-$157.3 billion in order to continue operations.
Out of which, Federal National Mortgage Assn Fnni Me (OTCBB:FNMA) will need $34.2-$94.9 billion capital infusion alone. On the whole, the results are better than what they were last year. As per the previous year’s stress test results, the two entities needed anywhere between $84.4 billion to $190 billion to survive a financial crisis.
The Federal Reserve introduced the condition of stress tests back in 2009, in order to, restore the shaken confidence following the financial crisis of 2008. The stock of Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) was up by more than 4% at $2.82 following the results. A total of 4.67 million shares changed hands during the previous session.
