Fannie Mae, Freddie Mac may need $190 billion in big downturn -regulator

WASHINGTON, April 30 Wed Apr 30, 2014 11:05am EDT

WASHINGTON, April 30 (Reuters) - Mortgage finance companies Fannie Mae and Freddie Mac could need to draw as much as $190 billion in additional taxpayer aid if the economy suffered a severe downturn, their regulator said on Wednesday.

The Federal Housing Finance Agency, which oversees the two taxpayer-owned companies, offered the estimate as the worst-case scenario in an analysis modeled on the stress tests conducted on the nation's biggest banks. The analysis relies heavily on U.S. home price projections.

The stress tests are required by the Dodd-Frank Act and are designed to determine whether regulated entities have enough capital to weather adverse economic conditions.

A worst-case scenario would require total aid ranging from $84.4 billion to $190.0 billion, depending on certain accounting assumptions, for the two companies through 2015. So far, Fannie Mae and Freddie Mac have drawn $187.5 billion from the U.S. Treasury, while returning $202.9 billion in dividends after posting record profits.

Under their bailout agreement with the government, they are required to sweep their profits into the Treasury and cannot rebuild capital that would cushion any sudden shock to the financial system.

"These results of the severely adverse scenario are not surprising given the company's limited capital," Fannie Mae Senior Vice President Kelli Parsons said in a statement.

Regulators took control of Fannie Mae and Freddie Mac in 2008 after losses stemming from subprime mortgage investments pushed them to the brink of insolvency.

The two largest suppliers of mortgage funds are operating under conservatorship while Congress considers an overhaul of the mortgage-finance system.

Fannie Mae posted a record $84 billion profit for 2013, and Freddie Mac reported its largest profit of $48.7 billion.

"The system today continues a flawed dynamic where taxpayers must support future losses at Fannie Mae and Freddie Mac should there be another downturn in home prices," Treasury Secretary Jack Lew told a congressional committee on Tuesday.

Fannie Mae and Freddie Mac own or guarantee about 60 percent of new mortgages. The Senate is considering taking action to wind down the taxpayer-owned mortgage financiers, but the measure faces an uncertain future.

"We need to start reform now - and we need legislation to achieve the fundamental reforms that protect both consumers and taxpayers," Lew said. (Editing by Bernadette Baum)