WASHINGTON U.S. mortgage financiers Fannie Mae FNMA.OB and Freddie Mac FMCC.OB may require as much as $190 billion in additional taxpayer aid if the economy suffers 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, required by the Dodd-Frank Act, are designed to show if regulated entities have enough capital to weather a financial collapse similar to the 2007-2009 crisis.
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 in bailout funds, while returning $202.9 billion in dividends to the U.S. Treasury after posting record profits.
"It is important to remember that the stress test results are modeled projections based on hypothetical economic conditions prescribed by FHFA," said Freddie Mac spokesman Tom Fitzgerald. "Actual outcomes may be very different."
Under their bailout agreement with the government, Fannie Mae and Freddie Mac must sweep their profits into the Treasury and cannot rebuild capital that would cushion any sudden shock to the financial system.
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.
"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.
The two largest suppliers of mortgage funds are operating under conservatorship while Congress considers an overhaul of the mortgage-finance system. The Senate is considering taking action to wind down the two taxpayer-owned companies, but the measure faces an uncertain future.
Fannie Mae posted earnings of $84 billion for 2013, and Freddie Mac reported a profit of $48.7 billion, both setting records. Executives of both companies have said they expect to see some profitable quarters in the future.
"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.
"We need to start reform now," Lew said, "and we need legislation to achieve the fundamental reforms that protect both consumers and taxpayers."
Fannie Mae and Freddie Mac own or guarantee about 60 percent of all U.S. home loans.
(Editing by Bernadette Baum and Lisa Von Ahn)