Fannie Mae (FNMA)

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Freddie Mac joins Fannie Mae in needing federal funds because of accounting losses

by Joseph Lawler | Feb 15, 2018, 10:22 AM


Freddie Mac, the bailed-out government-sponsored enterprise, told investors that it lost $3.3 billion in the fourth quarter of 2017, driven by a $5.4 billion in accounting losses due to the tax changes signed by President Trump in December. (AP Photo/Pablo Martinez Monsivais, File)

Freddie Mac, the bailed-out government-sponsored enterprise, told investors that it lost $3.3 billion in the fourth quarter of 2017, driven by a $5.4 billion in accounting losses due to the tax changes signed by President Trump in December. (AP Photo/Pablo Martinez Monsivais, File)
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Jeb Hensarling rips Fannie Mae's request for a $3.7 billion 'bailout'

Fannie Mae needs $3.7 billion from the Treasury thanks to tax cuts

Freddie Mac joined Fannie Mae Thursday morning in announcing that it would need funds from the Treasury thanks to accounting losses prompted by the new tax law.

The bailed-out government-sponsored enterprise told investors that it lost $3.3 billion in the fourth quarter of 2017, driven by a $5.4 billion in accounting losses due to the tax changes signed by President Trump in December. Because the losses exceeded the company's net worth, it needs $312 million from the Treasury.

The two companies' requests for funds from the Treasury don't mean much in practical terms, but they do raise the risk that members of Congress will criticize them for going through a new round of "bailouts." A top Republican lawmaker, House Financial Services Committee Chairman Jeb Hensarling of Texas, slammed Fannie on Thursday for just that.

The losses came about because Freddie has residual losses from the financial crisis that it is allowed to write off against future income in the form of a tax asset. But the GOP tax law, by lowering tax rates, made that tax asset less valuable.

Nevertheless, the change doesn't affect the underlying financial relationship between Freddie and the government. Since 2012, the government-sponsored enterprise has been required to send all its profits to the Treasury. And it has a line of credit with the Treasury, set up during its 2008 bailout, on which it can draw when it gets in trouble. Even after Thursday's request, that line will amount to $140.2 billion.

One practical issue, though, is that Freddie said Thursday that it would continue making contributions to affordable housing trust funds, even though conservatives like Hensarling are skeptical of the funds and don't want them to be replenished if Fannie and Freddie themselves are financial insecure.

Freddie said that its regulator, the Federal Housing Finance Agency, directed to keep making payments despite requiring money from the Treasury, on the grounds that its losses are one-time tax losses and don't suggest any underlying "financial instability at Freddie Mac." The FHFA is led by Mel Watt, an Obama appointee.

While Hensarling admonished Fannie on Wednesday for also contributing to the trust fund, Democrats and affordable housing advocates praised the decision.