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MortgageReal Estate

Fannie, Freddie fail Dodd-Frank severe stress test

Would need nearly $100 billion bailout in economic adversity

The Federal Housing Finance Agency released the latest results of the Dodd-Frank Act stress test results for Fannie Mae and Freddie Mac.

Both of the GSEs failed the test, showing they would need a bailout in the event of a severe economic crisis, the stress test results showed.

The 2017 DFAST Severely Adverse scenario is based upon a severe global recession which is accompanied by a period of elevated stress in corporate financial and commercial real estate markets.

The stress test results showed the GSEs would require an additional combined $34.8 and $99.6 billion. While they would still need a bailout, this is an improvement from last year’s $125.8 billion.

Through the second quarter this year, Fannie Mae paid out a total $162.7 billion to the U.S. Treasury, while Freddie Mac paid out a total of $108.2 billion during that same time period.

An article from MarketWatch explains the scenario the stress tests creates:

Under the hypothetical scenario, a severe global recession with “elevated stress” in corporate financial and commercial real estate markets plays out over nine quarters from 2017 to early 2019. GDP would decline as much as 6.50%, unemployment would peak at 10%, and consumer price inflation would decline to about 1.25%.

Additionally, equity prices would decline about 50% even as volatility picks up. Home prices would fall by 25%, and commercial real estate prices by 35%.

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3d rendering of a row of luxury townhouses along a street

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