Fannie Mae and Freddie Mac look like they would hold up better in a severe downturn today than their collective stress tests indicated in 2024.
The tests modeled how they’d fare after absorbing losses like a total $36.1 billion provision in net chargeoffs plus foreclosed property expenses. That shows the credit losses they’d be likely to face is closer to the $35 billion
Even after certain other negative line items beyond credit losses such as mark-to-market adjustments for securities, this year’s tests found that Fannie and Freddie combined would have $8.5 billion in total comprehensive income in a downturn, compared with the $4.2 billion in 2024.
The tests did also note that the GSEs would face a $6.8 billion loss when an allowance for deferred tax assets (DTA) is included, but this also marked an improvement from a year ago. In 2024, the GSEs’ stress tests modeled a combined comprehensive loss of $12.8 billion on this basis.
The Dodd-Frank Act stress tests include figures that account for DTA allowances because a downturn like the one that forced Fannie and Freddie into conservatorship could impact the value of these future tax benefits. The GSEs have re-established solid profitability since then.
Fannie and Freddie’s results may draw added attention this year amid talk of potential reforms to both the GSEs and
What Fannie and Freddie’s individual results look like
Fannie Mae’s total comprehensive numbers both with and without the DTA adjustment improved, but it’s still recording a loss when the allowance is included that made the combined total for both GSEs in that category negative.
With the allowance for DTAs, Fannie would incur a $7.2 billion accounting loss, according to this year’s stress test. That number represents a reduced loss when compared with $15.6 billion in 2024.
Fannie would generate a positive $4.3 million in TCI in a severe downturn without a deferred tax asset adjustment, according to the stress test results this year. In comparison, last year’s stress test showed it would record a total comprehensive loss of $1.1 billion on this basis.
Freddie’s TCI has been positive the last two years with or without the deferred tax asset adjustment, but numbers for income were lower than they were in 2024.
Total comprehensive income in a severe downturn was $4.2 billion with the allowance excluded or $400 million with the DTA adjustment. Those numbers were down from $5.3 billion and $2.8 billion a year ago, respectively.
More details on other potential losses in a downturn
Both GSEs saw reductions in the percentage of their average portfolio balance credit losses would represent when calculated over a nine month planning horizon. Fannie’s dropped to 0.35% from 0.49%, and Freddie’s fell to 0.58% from 0.61%.
In addition to credit provisions, the stress tests consider various losses on securities and derivatives that could occur in a downturn, which totaled $7.4 billion at Freddie and $5.5 billion at Fannie. These numbers were respectively $2.9 billion and $6.6 billion last year.
These losses and other smaller ones, in addition to a tax adjustment, are subtracted from pre-provision net revenue to calculate the total comprehensive numbers.