HERA very specifically requires a receivership under under-capitalization criteria. One condition, therein, is that the conservatorship ends with receivership. The next step would be a court appointed receiver (I believe "trustee" may be the correct term) to assume the management of the winding up process. My strong guess is that this triggering event will come near the end of 2017 when there is push back from Congress, bristling at the idea of further bailouts for the GSEs. I find it very unlikely that such resistance will lead to some Congressional Epiphany and get a reform bill for housing finance passed and signed into law. The more likely outcome will be a simple addendum to some funding bill that simply bars Treasury from any further advances to either GSE, leading inevitably to a mandatory receivership under the provisions of HERA.
That's when the fun starts. Bankruptcy law and bankruptcy investments are my area to harvest. A Federal bankruptcy judge is NOT going to get immersed in the debate of reasons for bankruptcy, vagaries of senior vs. junior preferred equity liquidation preferences or, frankly, any of the legal "mumbo jumbo" that flavors the current, over-flowing pot of litigation gumbo that has become Fanniegate, et al. He will make a decision, considering the interests of all stakeholders. Their attorneys can argue with him/her if they choose, but in the end the judge makes a final ruling and that is it. Bankruptcy settlements governed by a court order are rarely appealed, and even more rarely modified.
When Jacobs, Hindes was initially filed I said that any success there would likely push the government to liquidate both GSEs. Some viewed this as simple retaliation and dissed the idea, entirely. But it, rather, reflected the political reality that the Grover Norquist mentality of "nevermore" on bailouts and debt extension led by Gop'ers like the House Speaker... you know, the one that looks like Eddie Munster... will NEVER give Fannie or Freddie any more money so as to remain solvent. They don't care about housing. They even threw Social Security C-O-L-A increases and military spending under the bus via the stupid, stupider, stupidest "Sequester" insanity. They won't hesitate to throw affordable housing or the 30 year mortgage under the next bus in the fleet. Just you watch.
I may not like this outcome, but I only get a vote in how I chose to include or ignore it inmy investment outlook.
Happy to have my junior preferred position here based on my investment thesis.
JMHO.
