Fannie Mae, Freddie Mac receive US$3b capital cushion

[WASHINGTON] The US regulator overseeing Fannie Mae and Freddie Mac has reinstated a US$3 billion capital cushion for each of the mortgage guarantors, citing the imminent tax overhaul.

The $3 billion cushion, which comes after Fannie and Freddie were expected to eliminate their capital reserves next year, would cover "ordinary income fluctuations," the Federal Housing Finance Agency said on Thursday. The two enterprises remain in government conservatorship after the subprime mortgage crisis and are still expected to pay out quarterly dividends to the Treasury, according to the terms of their government support.

The FHFA and the Treasury Department said Fannie and Freddie probably would also need additional government funds because of the upcoming sharp drop in the corporate tax rate.

Once US President Donald Trump signs the tax bill passed by Congress, the decline in the corporate tax rate will require Fannie and Freddie to write down the value of tax-deferred assets they hold.

Fannie and Freddie, which have been directed to shrink their capital reserves under the terms of their rescue, will probably need the US$3 billion capital buffer, as well as future draws of federal government funds, to cover that upfront write-down, according to the Treasury and FHFA.

REUTERS