Fannie Mae-No Politics (FNMA)

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https://www.google.com/amp/s/amp.ft.com/content/1742e4fc-b1d0-11e6-a37c-f4a01f1b0fa1

US taxpayers face pumping billions of dollars into the mortgage guarantors Fannie Mae and Freddie Mac if Republicans push through tax cuts that would force the pair to take big writedowns.

Some investors believe that development would spur the Trump administration to privatise the pair, which are bedrocks of the $10tn US home loans market.

Fannie and Freddie currently benefit from US rules that allow companies to use losses incurred in previous years to lower taxes on future profits. But if Republicans reduce corporate tax rates, those “deferred tax assets” would be worth less and would have to be written down.


That would put the two groups, which have received about $188bn worth of government support since the crisis, at risk of needing additional public funds for the first time since 2012.

Investors and analysts said the disclosure highlighted Washington’s failure to reform the two institutions, which have been in a limbo status of government “conservatorship” — neither fully public nor private — since the financial crisis.

Several other companies including Citigroup, AIG and General Motors are also at risk of writedowns for similar reasons. Sid Sankaran, chief financial officer at AIG, estimated last week that a reduction in the tax rate to 20 per cent could result in a $6bn “remeasurement” at the insurer, which has about $16bn in DTAs.

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A pedestrian walks past the company headquarters of the Federal National Mortgage Association, known as Fannie Mae, in Washington, D.C., U.S., on Monday, March 10, 2008. U.S. regulators may reduce capital requirements imposed on Fannie Mae and Freddie Mac, the world's largest mortgage companies, to help them expand their combined $1.5 trillion in investments and revive the market for home loan securities, according to people with knowledge of the transaction. Photographer: Chris Kleponis/Bloomberg News
Fannie and Freddie: mortgaging the future
Congress stands in the way of privatising the companies
However, Fannie and Freddie have wafer-thin capital buffers and are less able to absorb losses than the other companies with DTAs.

They are required to pay billions of dollars in profits to the US Treasury. By the end of 2015 they had paid it about $241bn worth of dividends. Their capital buffers, already dwindling, are due to drop to zero by 2018.

Fannie, which has DTAs worth about $35bn, acknowledges in the small print of its corporate filings that a corporate tax cut could “result in a net worth deficit for the quarter in which the reduction occurs”.

Such a deficit would force it to draw on Treasury funds “to avoid being placed into receivership”, the disclosure says. Dick Bove, banking analyst at Rafferty Capital Markets, estimated that a cut in corporate taxes from the current rate of 35 per cent to 25 per cent would trigger a writedown at Fannie of about $4bn.