Measuring the capital positions of Fannie Mae and Freddie Mac: a CBO paper

Original publisher: [Washington, D.C.] : Congress of the United States, Congressional Budget Office, [2006] OCLC Number: (OCoLC)70879791 Excerpt: ... MEASURING THE CAPITAL POSITIONS OF FANNIE MAE AND FREDDIE MAC 5 Figure 1. capital, on balance, has recognized more unrealized losses than gains ( see the top panels of Figures 1 and 2 ). How-Fannie Mae's and Freddie Mac's ever, Fannie Mae's upcoming restatement of income and 9 Capital Positions capital could change that pattern. For Freddie Mac, regulatory capital has been greater than GAAP-based cap-( Billions of dollars ) ital in four of the past six years ( see the bottom panels of Fannie Mae 10 40 Figures 1 and 2 ). Fair Value Capital FASB requires firms to disclose where practical the fair Regulatory Capital 30 value of their financial assets and liabilities. Fannie Mae Fair Value Capital and Freddie Mac have gone further than most firms have 11 done by disclosing fair value balance sheets since 1992. In principle, fair value accounting attempts to measure all 20 financial assets and liabilities at actual or estimated mar-ket values, thus providing a more current value of capital GAAP-Based Capital 10 0 9. Fannie Mae is restating its results for the January 2002-June 2004 1993 1995 1997 1999 2001 2003 period. In addition, the firm has stated that its previously audited financial statements issued for 2001 are unreliable but are not being restated. Both income and capital will be affected by the Freddie Mac 40 restatements, which must be completed before Fannie Mae can resume issuing its quarterly and annual statements on a current Regulatory Capital basis. Fannie Mae currently expects to recognize net cumulative after-tax losses of $ 10.8 billion as of December 31, 2004. ( That 30 GAAP-Based Capital estimate is subject to change as a result of its continuing account-ing review. ) No restatement is expected prior to the second half of 2006. See Fannie Mae, " Form 12b-25 Notification of Late Filing with the Se...