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Due to Tax Reform’s Impact, Fannie Mae Realizes 4Q Losses, Prompting Need for Treasury Assistance

Published on February 14, 2018 by Glenn Gallo
Due to Tax Reform’s Impact, Fannie Mae Realizes 4Q Losses, Prompting Need for Treasury Assistance

Fannie Mae announced today in its latest earnings report that it realized a net loss in the fourth quarter of 2017, resulting in a net worth deficit of $3.7 billion as of December 31, 2017. The announcement goes on to say that, “To eliminate the company’s net worth deficit, the company expects the Director of the Federal Housing Finance Agency (FHFA) will submit a request to Treasury on the company’s behalf for $3.7 billion.”

According to the report, Fannie Mae realized a net loss of $6.5 billion in the fourth quarter, compared to net earnings of $3 billion in the third quarter. The primary cause for these losses were not issues with Fannie Mae’s core mortgagee guarantee business. In fact, the company’s net interest income, which is derived from its guaranteed fees, was up slightly in 2017 from 2016.

Instead, Fannie Mae’s losses were largely driven by expected revaluations of its deferred tax assets in light of the lower corporate tax rate enacted by the Tax Cuts and Jobs Act, which was signed into law late last year. This re-measurement reduced Fannie Mae’s net worth by $9.9 billion and led to the firm’s net worth deficit of $3.7 billion. Fannie Mae will likely receive assistance from Treasury by receiving approval to draw down from a line of credit Fannie Mae established with Treasury as part of its 2008 bailout the amount necessary to close the deficit. Even after drawing the $3.7 billion, there will still be $113.9 billion remaining in that line of credit.

Since it was first taken into conservatorship in 2008, Fannie Mae has received just under $120 billion in assistance from Treasury. Since 2012, the firm has been largely profitable, paying Treasury over $166 billion in dividends under the existing agreement it has with Treasury to remit its net revenue to Treasury.