Great question. I have no easy answer for you, though. So much depends on the courts, now. A year ago I sensed a settlement was attainable, the legal war could end and some semblance of order could be reinstated that would preserve all equity and release under reasonable conditions. I no longer see that as possible; too many new suits have been filed, mucking up the machinery of any negotiated deal via too many signatories to any deal with too many, varied financial goals in Fanniegate.
1. The only way a $25 common S/P will be attained will be via a successful verdict upholding charges levied by plaintiffs. With appeals likely this could take many more years to confirm or reject. The only path this would have would be IF there is a ruling to invalidate both conservatorship and Amendment 3, and would require a new Delaware Court of Chancery action to stay liquidation in January, 2018 pending the appeal process to be concluded. I view this as highly unlikely. 2%?
2. I see two ways an $8 common S/P could be in the money. First would be a court ruling that Amendment 3 was an overreach and gets modified to a lesser percentage than 100%, a set parameter of duration beyond "forever" or some combination of both. The second path would be if some reform path like the Mulvaney bill gains traction and triggers a release and recap operation. Shares would rise on release, but the hiatus to rebuild capital would be lengthy, plus the GSEs would have to deal with the resumption of JPD payments and/or redemptions that hampers the recap process. 25%?
3. I see the prospects much more optimistically for junior preferred shares. The most immediate appreciation would be under the liquidation preference scenario. This could be triggered either of two ways: when the money runs out in DEC 2018... or... if some court settlement imposes unpalatable penalties on government and they recoil from any further risk of more litigation, ever again, and opt to exit their role in any related enterprise or only some new one. Since Fannie has little outstanding borrowings with priority above PFD shares, this outcome is a better bet. The last time I ran the numbers I concluded that shares bought at $5 would cash out at around $15-18 in a liquidation. In a release scenario, the S/P would rise equivalently because the dividends on the later-issued pfds carry a coupon rate of around 7.25% against a $25 par. I'll put that in focus; an FNMAS divvy @ $1.81 would be a 10% yield on an $18 share price, a figure consistent with equity dividends for REITS like NLY or ARR, both stocks I own and track regularly. Odds on this outcome: 75%.
I do not believe under any scenario that the warrants will be cancelled.
JMHO.
