Fannie Mae (FNMA)

[obiterdictum]

Thank you

Here is my simple question


lets say - for an example

the equity investment is 100,000,000 (senior preferred stock) with dividend rate of 5%

now that equity investment becomes instead a loan of 100,000,000

_ _ _ _

F and F paid 5,000,000 in dividends in year one on the investment

as a loan to F and F the interest owed in year one is 5% or the same $5,000,000

how does the principal get reduced and amortized - as the amount (the 100,000,000) stays the same and the dividend rate is set at the interest rate = 5%

a payment of 5,000,000 would be all interest

no ?

if I did an amortization table at 5% - then to reduce principal the payments to the GOV in year one would have to exceed the money actually paid as pure dividends - where 5% = 5% - there would have had to be a payment in excess of 5,000,000 or an interest rate on the loan of say 4.9% ....

now - later - when F and F paid more than 5% after the NWS - then the principal is attacked big time and then interest owed on the "remaining balance of a declining balance loan" will indeed chip away and then erode the principal

but until there is a year with money paid - in this example greater than 5,000,000 - it is all interest ... I think

(e.g. a mortgage at 5% has a payment amount that is a tad more than 5% so that one can be paying the 5% interest owed on nearly the full owed amount in year one and still attack the principal - a bit because the amount due is not 5% x the mortgage borrowed.

If this link works - here is a 100,000 dollar loan - 30 years - 5%
the lowest monthly is 456.05 or 5,472.6 --- it has to be higher than 100,000 x .05 or one never attacks the principal

http://www.myamortizationchart.com/30-year/100000-dollars/5_25-percent/

Donotunderstand, this bill is a simple matter. But consider the problems first.

The problem with the bill is that it does not make clear how the amortization schedule is to be constructed. It does not consider pre-payments because it is a retroactive application of loan arrangements to GSE draws from the Treasury and GSE dividends paid to the Treasury. The bill does not provide the frequency of payments (monthly, quarterly, semi-annually, annually etc.) or how to compound interest (monthly, quarterly, semi-annually, annually etc). So we are forced to make it up and consider the possible results.

So, the only thinking required at this point is to plug the existing information into a 30 year amortization schedule at a 5% interest rate for each loan originated according to the bill's provisions.

No need to make up numbers. We have them all.

Use this financial calculator to create an viewable and printable amortization schedule.
https://financial-calculators.com/amortization-schedule

Try making a 30 year amortization schedule for Fannie Mae (and/or Freddie Mac).

1. Enter one of Fannie Mae Aggregate of Draws Made Per Year - all draws made and dividends paid are linked below

2009 - 59,900,000,000 - principal obligation
2010 - 27,700,000,000 - principal obligation
2011 - 23,978,000,000 - principal obligation
2012 - 4,571,000,000 - principal obligation
Total - 116,149,000,000 - principal obligation

2. Input the information into the calculator

a. loan amount - 59,900,000,000
b. Payment # - 360 - Understand that: 360 payments, with monthly payment frequency = 30 years.
120 payments, with quarterly payment frequency = 30 years and so on.
c. Annual Interest Rate - 5%
d. Payment Amount - Leave empty or 0
d. Loan Date - leave as is.
e. First Payment - leave as is.
f. Payment Frequency - choose monthly and then vary to see different results
g. Compounding - Choose the same as payment frequency i.e. monthly and monthly
h. Points (%) - leave as is 0.000%
I. Amortization Method - Normal

3. Click Calc and then Print/Preview - to see the Loan Summary and Amortization schedule.

Remember the total dividends paid by Fannie to Treasury is $154,375,000,000.

So, the first loan with a principal obligation of 59,900,000,000 plus calculated interest will be fully paid.

Then go on to the next loan's principal obligation amount (27,700,000,000) to see how much of that loan's principal and interest will be paid by what is left after the first assigning of the dividends paid as principal and interest on the $59,900,000,000 loan. Just assign the remainder to the principal and interest as indicated.

When the dividends run out, the principal and interest not paid on that loan and the remaining loans is what is owed the Treasury.

See what Capuano has suggested for the GSEs

Source:
H.R. 491
https://www.congress.gov/bill/115th-congress/house-bill/491/text

Quarterly Draws on Treasury Commitments to Fannie Mae and Freddie Mac per the Senior Preferred Stock Purchase Agreements
https://www.fhfa.gov/DataTools/Downloads/Documents/Market-Data/Table_1.pdf

Dividends on Enterprise Draws from Treasury
https://www.fhfa.gov/DataTools/Downloads/Documents/Market-Data/Table_2.pdf