Overview

• Fannie Mae and Freddie Mac (the “Enterprises”) are required to conduct annual stress tests pursuant to Federal Housing Finance Agency (FHFA) rule 12 CFR § 1238, which implements section 165(i)(2) of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act"). Section 165(i)(2) of the Dodd-Frank Act requires certain financial companies that have total consolidated assets of more than $10 billion and are regulated by a primary Federal financial regulatory agency to conduct annual stress tests to determine whether the companies have the capital necessary to absorb losses as a result of adverse economic conditions. This is the fourth implementation of the Dodd-Frank Act Stress Tests (DFAST) for the Enterprises.
• This report provides updated information on possible ranges of future financial results of the Enterprises under severely adverse conditions. The severely adverse conditions assumed were identical for both Enterprises.
  
• The projections reported here are not expected outcomes. They are modeled projections in response to “what if” exercises based on assumptions about Enterprise operations, loan performance, macroeconomic and financial market conditions, and house prices. The projections do not define the full range of possible outcomes. Actual outcomes may be different.
  
• The DFAST Severely Adverse scenario is described on page 3. The Enterprises used their respective internal models to project their financial results based on the assumptions provided by FHFA.
  
• While this effort achieves a degree of comparability between the Enterprises, it does not eliminate differences in their respective internal models, accounting differences, or management actions.

Severely Adverse Scenario Results Summary

• As of December 31, 2016 the Enterprises had drawn a combined $187.5 billion from the Department of the Treasury under the terms of the Senior Preferred Stock Purchase Agreements (PSPAs), and the combined remaining funding commitment under the PSPAs was $258.1 billion.
• In the Severely Adverse scenario, incremental Treasury draws are projected to range between $34.8 billion and $99.6 billion depending on the treatment of deferred tax assets.
• The remaining funding commitment under the PSPAs after the projected draws is $223.2 billion, without establishing valuation allowances on deferred tax assets.
• Assuming both Enterprises establish valuation allowances on deferred tax assets, the remaining funding commitment is $158.4 billion.
  

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