Fannie Mae, Freddie Mac rescue could cost $363 billion by 2013

By Lisa Kerner

Charlotte, N.C., Oct. 21 - The Federal Housing Finance Agency announced on Thursday that Fannie Mae and Freddie Mac have drawn $148 billion to date from the Treasury Department under the terms of their preferred stock purchase agreements.

The FHFA, along with Fannie Mae and Freddie Mac, used house prices to develop three scenarios to make future projections across three possible paths, according to an FHFA news release.

The projected combined cumulative Treasury draw for both Fannie Mae and Freddie Mac through Dec. 31, 2013 could reach $221 billion under scenario one, $238 billion under scenario two and $363 billion under scenario three.

The cumulative projected draw through 2013 for Fannie Mae under each scenario is approximately double the projected draw for Freddie Mac in part because Fannie Mae's mortgage book of business is 45% larger than Freddie Mac's, the FHFA release said.

If dividend payments on preferred stock are excluded, the projected cumulative draws range from $142 billion to $259 billion under the scenarios used in the projections.

The FHFA said credit-related expenses, particularly the provision for credit losses, are the primary driver of projected Treasury draws.

Fannie Mae's credit-related expenses increase by $85 billion from scenario 1 to scenario 3, while Freddie Mac's increase to $28 billion. Of the projected $142 billion difference in Treasury draws, $113 billion is directly related to credit-related expense projections.

"These projections are intended to give policymakers and the public useful snapshots of potential outcomes for the taxpayer support of Fannie Mae and Freddie Mac," FHFA acting director Edward J. DeMarco said.

"These are not predictions; the results reflect the potential effects of a limited set of hypothetical changes in house prices, a key variable driving credit losses for the enterprises [Fannie Mae and Freddie Mac]."

Other key factors that influence Fannie Mae's and Freddie Mac's financial results but were not changed in the scenarios include interest rates, securities prices, agency MBS spreads, Credit Guarantee growth and retained portfolio growth.

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