Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) along with the other mortgage company Federal Home Loan Mortgage Corp (OTCBB:FMCC) would need an additional bailout of almost $157.3 billion in event of a deep recession. It was revealed in stress tests conducted for the U.S.-backed companies.
Federal National and Federal Home have taken bailout of $187.5 billion since 2008. The latest test reveals that it would require additional funds to operate if home prices declined in a deep recession, the FHFA said in a report this week. The tests, directed by the Dodd-Frank Act, are based on the same assumptions as used by the Federal Reserve in assessing the ability of the country’s largest banks to deal recession.
The stress tests results highlight Federal National Freddie Mac bailout terms, which force them to send all of their quarterly profits above a threshold limit to Treasury. It is stated as a return on the government’s investment that it made on the two companies during financial crisis. The terms prevents from using the profits for any other purposes.
If the economy were to shrink by 4.5% in 2016 and the unemployment rate in the U.S. were to touch 10%, the two mortgage giants would require $68.6 billion to $157.3 billion in taxpayers’ aid, depending on treatment of tax assets in the accounting. A similar test conducted last year projected bailout need of around $190 billion in a deep recession.
Freddie Mac and Federal National have become profitable units as the housing market rebounded from the deep financial crisis. The hedge fund Perry Capital LLC and shareholders including Fairholme Capital Management are calling for the U.S. government to permit investors take a share in the capital the two companies are returning to taxpayers.
In last trading session, the stock price of Federal National jumped 0.74% to close the trading session at $2.71.