GSEs Pass Bankruptcy Stress Test

September 14, 2021
Despite a possible $20 billion in combined credit losses Fannie Mae and Freddie Mac would avoid bankruptcy according to stress tests.


Even with the economic recovery teetering up and down, one thing we won’t have to worry about is Fannie Mae and Freddie Mac going bankrupt.  That’s because the two GSEs were stress-tested this year, which runs the companies through various models of economic duress. In the worst case, the mortgage giants Fannie Mae and Freddie Mac would face up to $20 billion in combined credit losses in the event of a severe financial downturn, according to stress test results released Friday by the Federal Housing Finance Agency. Although the credit losses would exceed those forecast under previous stress test scenarios (this is an annual exercise, undertaken every year since the implementation of the Dodd-Frank Act), Fannie and Freddie likely maintain a large enough capital cushion to cover the projected losses. The government-sponsored enterprises, as part of an annual exercise required for institutions with more than $250 billion of assets, were tested against a hypothetical financial crisis scenario that featured a severe global recession with stressed commercial real estate and corporate debt markets as well as a global market shock.

Source: Rise and Shred