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NEW YORK, March 31 U.S. mortgage finance giants
Fannie Mae and Freddie Mac may write down
$21 billion of tax-related assets if there is a deep cut in the
federal corporate tax rate as promised by President Donald
Trump, according to an analyst at BMO Capital Markets on Friday.
These assets, known as deferred tax assets, are items such
as tax credits that may be used to reduce a company's taxes.
If the rate cut is lowered to 20 percent from 35 percent,
the value of Fannie and Freddie's deferred tax assets is worth
less and it would be recognized against their capital.
The two agencies, which guarantee home loans and
mortgage-backed securities, are holding little capital since
they are not allowed to retain their earnings after they have
been under conservatorship or government guardianship due to
heavy losses from the housing market collapse more than eight
Fannie drew $116.1 billion and Freddie $71.3 billion from
the U.S. Treasury Department to cover those losses. They have
remitted all their profits, which are more than their draw, to
the Treasury under the conservatorship arrangement.
In absence of much capital cushion, the government-sponsored
enterprises (GSEs) would need borrow nearly a total of $17
billion from Treasury, BMO's head of fixed-income strategy,
Margaret Kerins, wrote in a research note.
Such a move, however, would not hurt the value of their
bonds or disrupt mortgage market, she said.
"However, the potential for renewed draws is likely to be
politically unpopular and may spark preemptive Treasury action
and Congress to prioritize GSE reform in addition to headline
risk," Kerins wrote.
(Reporting by Richard Leong; Editing by Jonathan Oatis and