Fannie, Freddie Fail Stress Tests

Fannie Mae and Freddie Mac could need upwards of $100 billion in bailout funds if faced with another financial crisis, according to the results of the GSEs’ Dodd-Frank Act stress tests released yesterday. Under a “severely adverse” scenario that saw GDP fall 6.5 percent from its pre-recession peak and unemployment reaching 10 percent, Fannie and Freddie combined would require between $34.8 and $99.6 billion in Treasury funds, the Federal Housing Finance Agency said in its report.

The findings underscore the need for housing reform that would shift risk away from taxpayers, which the American Bankers Association has long called for. The association earlier this year outlined nine principles for reforming Fannie and Freddie, with the goal of reducing the direct role of the federal government in mortgage finance, restoring private participation in housing markets and ensuring equitable access. ABA also testified at a recent Senate Banking Committee hearing on housing reform, and will continue to encourage further engagement on the issue on Capitol Hill when Congress returns in September. For more information, contact ABA’s Joe Pigg.

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