If the worldwide economy were to crumble, Fannie Mae and Freddie Mac could need as much as $126 billion in bailouts, according to a new report from the Federal Housing Finance Agency.
The scenario is not a forecast, but instead is a hypothetical future economic environment designed to assess the strength of the Enterprises and other financial institutions and their resilience to unfavorable market conditions.
In the stress test, referred to a “severely adverse scenario,” Fannie Mae and Freddie Mac would be required to draw between $49.2 billion and $125.8 billion from the Treasury.
The Dodd-Frank Act requires certain financial companies with total consolidated assets of more than $10 billion, and which are regulated by a primary Federal financial regulatory agency, to conduct annual stress tests to determine whether the companies have the capital necessary to absorb losses as a result of adverse economic conditions. This is the third implementation of the Dodd-Frank Act Stress Tests (DFAST).