GSEs would need further bailout under Fed's "severely adverse" scenario

|By:, SA News Editor

Under the FHFA's baseline scenario, neither Fannie Mae (FNMA -1.3%) nor Freddie Mac (FMCC -1.8%) would require addition draws from the Treasury through 2015, but under the "severely adverse" scenario applied to the banks by the Fed in its stress tests, incremental draws of between $84.4B and $190B would be necessary.

The severely adverse scenario includes a 25% decline in home prices over about a two-year period, a 20-90% decline in non-agency MBS prices, and the instantaneous default of the largest derivative counterparty.

Under the worst FHFA scenario, home prices would decline 2% over nine quarters.