As the Senate launched into debate on tax reform Wednesday, a still-unanswered question was whether lawmakers will address a potentially huge negative consequence for Fannie Mae and Freddie Mac.
Banks and other financial institutions have cheered the proposal to lower the corporate tax rate from 35% to 20%, and support of the bill by key Republicans has seemed to increase the odds of passage of late.
Yet Fannie and Freddie observers are warning that a reduced rate will hit the government-sponsored enterprises hard. At issue are the GSEs' tax-deferred assets that rise and fall in value based on corporate tax rates. Some have warned that the plan could result in losses in the tens of billions. With the companies already required to sweep their profits to the government, write-downs of tax-deferred assets could make an already worrisome capital situation worse.
Read more in American Banker.