The Federal Housing Finance Agency released projections of the financial performance of Fannie Mae and Freddie Mac, showing both will repay the U.S. Department of Treasury faster than anticipated because of the housing market turnaround.
The projections reflect potential draws with the Treasury under the Senior Preferred Stock Purchase Agreements.
The government reduction of the GSE investment portfolio is already sped up to a 15% annual reduction from the previous 10%.
The newly released projections focus on various current outlooks in the industry, including house prices, trends in borrower behavior and interest rates.
The Enterprises drew $187.5 billion from the Treasury under the PSPAs terms. The projection has set up three scenarios that estimate that the cumulative Treasury draws will be $191 billion to $209 billion by the end of 2015.
Scenario one is stronger near-term rebound, which predicts the expansion of credit supports above-baseline recovery, resulting in no further declines in housing prices. However, additional increases for the remainder of the year and 2013 are minimal.
Scenario two is current baseline, which states the remaining home price declines will contribute to 34% peak-to-trough decline. The new housing permits would reach an annual pace of 1 million units by 4Q13.
Scenario three is a deeper second recession, which would not be as severe as the 2008-2009 downturn, but the rising unemployment would cause the housing market to weaken further.
In any of the three scenarios, Freddie Mac would not require any additional draws after 2012. Fannie Mae would not require any additional Treasury draws after 2012 in scenario one or scenario two, but would need draws for scenario three.
Fannie Mae’s cumulative draws are higher than Freddie Mac’s because its mortgage book of business is 50% larger than Freddie Mac’s.
The total combined capital change is projected to range from a reduction of $131 billion to a reduction of $150 billion from the 2008 through 2015.
The results of Freddie Mac’s September value summary report show a drop to $39 billion in mortgages from $41.3 billion in August.