Monday, August 16, 2021 1:36:01 AM
The stress test contemplates $42 billion of credit losses, not $20 billion.
$42 billion is recorded on the Income Statement upfront, as a provision for loan losses.
The Income Statement 2-year projection, states that FnF would post $15 billion of Net Income (including the $42 billion provision mentioned)
$20 billion of credit losses isn't recorded on the Income Statement. It's charged against the reserve that you just have built ($42 billion plus the beginning balance of this Loan Loss Reserve), so, the ending balance of this reserve at the end of the period of stress test, 1Q2023, is $31 billion to cover more credit losses the next years.
So, the FHFA expects $42 billion of credit losses. $20 billion of which are recorded in the first two years.
Even after $42 billion in losses are fully reserved, FnF would post a profit during the first two years.
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