Freddie Mac releases 2023 stress take a look at outcomes

In accordance with the Dodd-Frank Wall Road Reform and Client Safety Act, Freddie Mac has launched its 2023 Stress Check Disclosure, which displays two hypothetical financial situations, together with a “severely opposed” situation. Beneath the latter, Freddie Mac would face a credit score lack of $13.7 billion — or 0.4% of its complete portfolio — below the opposed situation.

Losses below the 2023 situation are larger when in comparison with the outcomes of the 2022 take a look at. Final yr, the GSE was projected to face a credit score lack of solely 6.3%, or 0.19% of its common portfolio steadiness.

Fannie Mae has not but launched the outcomes of its 2023 Dodd-Frank Act Stress Check (DFAST). In June of this yr, that GSE was pressured to re-release the outcomes of its 2022 take a look at after it had made an “identification of errors in an underlying mannequin.” This led the GSE to advise in opposition to “rely[ing] on the knowledge in [the] report for any objective.”

Freddie Mac is required to conduct annual stress assessments in an effort to “assess capital adequacy below [the Federal Housing Finance Agency (FHFA)’s] rule implementing the Dodd-Frank Wall Road Reform and Client Safety Act (Dodd-Frank) stress testing necessities,” the outcomes defined.

The annual assessments are designed to find out capital adequacy, and summarizes outcomes primarily based on a “severely opposed” situation prescribed by FHFA primarily based on a hypothetical situation that illustrates the resiliency of the mannequin to difficult financial situations.

This yr’s opposed situation requires a 38% decline in house costs, a 40% discount in business actual property costs, and a extreme world market shock with the GSE’s largest counterparty defaulting.

The GSE can also be required to reveal “sure capital data, resembling web price, and accessible frequent fairness tier 1 (CET1) calculated in accordance with necessities of the FHFA Enterprise Regulatory Capital Framework (ERCF) Rule,” a requirement which started with the publication of 2022’s outcomes.

“Outcomes are usually not anticipated outcomes,” Freddie Mac stated. “They’re modeled projections primarily based on hypothetical financial situations. Precise outcomes could also be very totally different.”

As soon as Freddie Mac releases its 2023 DFAST, FHFA is anticipated to compile a report that includes each units of outcomes.

Earlier this month, Freddie Mac reported that it had generated $2.94 billion in web revenue within the second quarter, up 41% from the primary quarter and 20% year-over-year.