Fannie Mae will require $3.7 billion from the Treasury, the bailed-out government-sponsored enterprise announced Wednesday morning, thanks to accounting losses resulting from the tax cuts signed by President Trump in December.
The mortgage giant is, in effect, collateral damage from the tax law. It has large deferred tax assets from the financial crisis, essentially losses that it is allowed to write off against tax liabilities. With lower tax rates in the future, those tax assets are now worth less, resulting in accounting losses.
“Our 2017 results demonstrate that the fundamentals of our business are strong,” CEO Timothy Mayopoulos said in a statement. “While the fourth quarter was affected by a one-time accounting charge, we expect to benefit from a lower tax rate going forward.”
Fannie reported losses of $6.7 billion in the fourth quarter, altogether. With capital of $3 billion, the losses lowered its net worth to negative $3.7 billion, necessitating the draw on funds from the Treasury.
Fannie has a line of credit with the Treasury, under the the terms of its 2008 bailout. Even after drawing $3.7 billion, it will have $113.9 billion remaining in that line of credit.
From the government’s perspective, then, the $3.7 billion draw isn’t meaningful. Both Fannie Mae and Freddie Mac are required to send all of their profits to the Treasury.
But funds flowing from the Treasury to the GSEs raises the risk that members of Congress will fault them for receiving additional bailouts.
Freddie Mac is set to report earnings on Thursday.
Despite the losses, Fannie said that it will still contribute to affordable housing trust funds. Republicans have criticized those contributions.
Some congressional Republicans, including Sen. Bob Corker of Tennessee and House Financial Services chairman Jeb Hensarling of Texas, are seeking this year to reorganize the housing finance system and reform or shutter Fannie and Freddie.
Treasury Secretary Steven Mnuchin has also said the administration has administrative options to reform them if Congress doesn’t act.
