Fannie Mae’s $6.5 billion net loss in the fourth quarter highlights the need for stronger capital buffers for the government sponsored entity, according to the Independent Community Bankers of America (ICBA).
Fannie Mae’s fourth-quarter loss occurred because the entity had to remeasure its deferred tax assets due to the recently passed Tax Cuts and Jobs Act. As a result, it requested $3.7 billion from the U.S. Treasury to cover the losses.
“Fannie Mae’s $6.5 billion net loss illustrates the need for policymakers to allow a stronger capital buffer at the government-sponsored enterprises to avoid additional taxpayer capital calls and potential harm to the housing-finance system,” ICBA President and CEO Camden Fine said. “While the fourth-quarter loss was caused by a one-time write-down of deferred-tax assets due to tax reform, it nevertheless shows that the reduction of GSE capital and systematic sweep of revenues into government coffers creates instability for taxpayers and the community banks that depend on Fannie Mae and Freddie Mac for direct access to the secondary mortgage market.”
Fannie Mae and Freddie Mac have transferred about $280 billion to the Treasury since 2013, which is roughly $100 billion more than the capital infusion they received during the financial crisis, Fine said.
“Yet they are not permitted to retain and maintain sufficient capital that can provide stability in the event of short-term losses, such as that created in the fourth-quarter from a legislative change to tax law. The Federal Housing Finance Agency and Treasury Department must ensure that the GSEs are afforded the opportunity to operate under safe and sound capital policies and parameters,” Fine said.
ICBA calls on Federal Housing Finance Agency Director Mel Watt and Treasury Secretary Steven Mnuchin to end the sweep of GSE earnings and to allow Fannie and Freddie rebuild their capital buffers through retained earnings.
“Community banks depend on the liquidity that Fannie and Freddie provide, as do American homebuyers,” Fine said.