Another Fannie-Freddie bailout could cost taxpayers $100 billion – report

by Ryan Smith08 Aug 2017
Bailing out Fannie Mae and Freddie Mac again could cost taxpayers nearly $100 billion, according to the Federal Housing Finance Agency.

On Monday, the FHFA published the results of a stress test it conducted on the government-sponsored enterprises. The rest found that if the economy took a nosedive, Fannie and Freddie could need a bailout to the tune of $99.6 billion.

The test, mandated by the Dodd-Frank Act, examined how the GSEs would perform in a “severely adverse scenario,” according to a MarketWatch report. That “severely adverse scenario” is basically a repeat of the 2008 meltdown.

In the FHFA’s hypothetical scenario, a global recession with “elevated stress” in the financial and commercial real-estate markets stretches over nine quarters. In such a scenario, GDP would fall as much as 6.5%, unemployment would hit 10%, and consumer price inflation would fall to about 1.25%, according to MarketWatch.

An event like that would also decimate the housing market, with home prices tumbling by 25% and commercial real estate prices plummeting by 35%.

Under that scenario, the FHFA found that Fannie and Freddie would require a total of between $34.8 billion and $99.6 billion in the event they needed bailing out again.

That’s a very large number – but it’s actually a pointed improvement from last year. In a 2016 stress test, the FHFA found that the GSEs would need as much as $125.8 billion from taxpayers if the economy tanked.

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