Fannie Mae-No Politics (FNMA)

[TightCoil]

11 hours until opening bell...Are You Ready?
i might have to open another bank account
to hold it all

[DaJester]

"Existing common shareholders do not own the companies at all. They have no economic rights and no voting rights. Nothing."

If you want to make an extreme click-bait statement, sure.

But as usual, you state facts yet drill down to a single conclusion that only time will tell if it's true. We are still shareholders. Shareholders have the rights associated with the Shareholder agreement. These rights do not dissolve suddenly in 2012 because of a contract between two government entities that violates the fair dealing with Shareholders. These rights travel with the shares. This is backed by the Berkley verdict.

The economic and voting rights are temporarily suspended during conservatorship. That is why it is a Conservatorship and not Receivership. Dilution of those rights is possible as part of the emergence from Conservatorship. In fact, Treasury could wipe all of the Common and JPS value based on their LP amounts. It's also possible they don't wipe 100% of the value of the companies. And no - the amount of equity Treasury took from AIG has zero bearing on what they may take from the GSEs.

Furthermore, FHFA (control) and Treasury (ownership) fall under the Executive Branch. As such, the control and ownership can be altered based on political winds of who is in charge of the Executive branch at any time. It is possible the leader of the free world will abscond with the value of 2 publicly traded private entities worth billions of dollars. It's also possible the leader of the free world will believe in the 5th Amendment. We may see a concept similar to Tyler v. Hennepin County, where the GSEs would be seen as obligated to render unto Caesar what is Caesar's, but no more. The resolution of Conservatorship may include NOT further violating the covenant of good faith and fair dealing with Shareholders. IMO, this would be the smarter resolution.

It is completely unnecessary for Treasury to liquidate the GSEs in order for them to function again or to be rehabilitated. There is no need for a government windfall to make Caesar whole. So while I agree with you that it is possible Treasury conversion wipes common shareholders out completely, I also see other possibilities. If you don't see those possibilities, that's on you and I'm sure you will invest accordingly.

[EternalPatience]

if Fart noise says it, it must be true

[Fannie Heyyyyy]

KThomp, you appear to have a solid, in depth understanding of FnF history as it pertains to FHFA and Treasury.

I enjoy reading your posts, but I have no idea on how you see the conservatorship ending. How do you see the preferreds and commons doing? I realize there are numerous possible outcomes, but I'm curious what you think.

[basesloaded]

Agreed!

[JosephS]

They are not here to make money

They’re just here to argue

[TightCoil]

The Conservatorship and it's administration REEK with CORRUPTION

[Donotunderstand]

Page 47 of Fannie Mae's 2024 Q1 10-Q form shows that they have a shortfall of $156B to the Adjusted Total Capital requirement of $106B. 25% of the $82B buffer adds another $21B to give the total shortfall to being able to pay dividends: $177B.

$121B of that could be made up in an instant if Treasury decides to cancel the seniors

and it could happen - the GOV could cancel the LP value of the SP equity

if done - then the shortfall is 177 minus 121 or 56Billion

Worth hoping and waiting for

[Guido2]

Good governments don’t put their most profitable corporations in fraudulent “temporary” conservatorships and then swindle their equity for pet projects not funded by Congress.

FREE FANNIE!
FREE FREDDIE! https://t.co/k0pI6bY97h

— Guido da Costa Pereira (@GuidoPerei) May 1, 2024

[Donotunderstand]

but is it on the TREASURY balance sheet ? and if yes - how does it show --- as the SP value or ?

[Donotunderstand]

the LP is not and never was repayable.

F and F will likely not have the money - but why is the LP (a # defined to rep the SP equity value) not callable ?

[DaJester]

Glad you were able to make a profit. :)

Curious - Do you have a re-entry point in mind if the JPS come back down?

[Donotunderstand]

I do hope so !!!!!!

yet - the LP sits out there --- ?

[Donotunderstand]

I saved this to read slowly

Thank you - solid explanation

[The Man With No Name]

Is there any other channels on AM?

[NoahG15]

Lulevan, I've enjoyed your perspective on this morass over the years.

Good luck to you sir; I hope you'll continue to linger around.

[jog49]

Yep, that's why there were recent jokes about 5%. As soon as 4% is achieved (which is way out there) the government will then move the goalposts to 5% . . . so on and so forth........

[DaJester]

One man's noise is another man's music. Don't like it, change the station.

[DaJester]

Calabria's position is clear, and he is the author of the book. But last I checked, he speaks from FHFA position not any official Treasury position. You repeating "Treasury thinks it's illegal" is a highly inaccurate and liberal use of a book quote. There may be a PERSON or PEOPLE at Treasury who thought that and may have stated such to Calabria. However, someone thinking it does NOT make it true that it is in fact illegal. You keep acting as if it is because it's in a book.

I know you can follow this train of thought, you simply refuse to.

[DaJester]

"Calabria repeated his preference for a senior-to-common cramdown in this article, so if you're referring specifically to that then the evidence is still on my side."

And how exactly does that relate to what "Treasury thinks?"
-------------------------
Treasury Thinks ™
- Copyright KThomp 2023

[DaJester]

"Are you really basing part of your common investment thesis on the idea that someone, someday, might bring a lawsuit and that said lawsuit would succeed in such a way as to make the common shares worth appreciably more?"

No, I'm just conversating and speculating what could happen.

"The 2012 NWS already removed all shareholder economic rights in the future by making it impossible for FnF to ever build capital"
And there will soon be a ratified 2023 decision that says Shareholders do have a right to reap in the benefits of the company profits as per the shareholder agreement. What's your point?

[DaJester]

"Does that mean if a senior-to-common exchange happens you think it will be too late for anything to be done about it? The same logic would apply to warrant exercise."

Yes, although this doesn't mean lawsuit/s won't be filed after the fact. They just have a near-zero chance of success. What are they waiting for? I don't know, I don't speak for "they".

"they would have to take a $200B writedown of asset value, thereby increasing the national debt by that amount"
Yes, but how did the rogue assets get on the books to begin with? It's kind of like the DTAs, it's all just bookkeeping entries and where they are entered. This is different than actual or future cash flows. There is no tangible taxpayer money lost by halting the future pillage of privately owned companies. It's not their (future) money to lose. It sits there as an accounting entry based on the ongoing conservatorship and resulting dividends.

The money recovered from the initial draws/debits has already been entered on Treasury's books and already exceeded the draws. Unfortunately, it was not used to write down the assets because they built the contract in a way that prevented that logical return of capital. But it was actual cash received by Treasury. A write-down could rectify the accounting to prevent a government windfall - 300bn already received, plus another 300bn to retire the SPS? Just as easily as the conservatorship started with government policy, it can just as easily end. This is mentioned in the footnotes of the report: "Estimated senior preferred values and future draw amounts will depend on numerous factors that are difficult to predict including, but not limited to, changes in government policy with respect to the GSEs". The amounts CAN be altered with a pen swipe.

While it's possible the 300+bn worth of SPS gets converted, it's also possible it's less than that. Just my opinion and speculation, so no - I will not share a calculation nor will I file a prospective lawsuit on behalf of "they" in case you were going to ask.

[jcromeenes]

Didn't Cat Man set it at 4%? Something like that anyway, I thought.

[jcromeenes]

They can but in the end it doesn't matter. This, literally, takes an act of congress to get out of jail.

[TightCoil]

Freddie closes up 4 cents to $1.40 on 1.2M shares
and pulled up off her low of $1.36
Fannie closes up 5 cents to $1.52 on 2.1M shares
and pulled off low of $1.45
GREAT DAY

[PennMilitia]

kthomp19 works for the GOVT

[Golfbum22]

can you or someone please post the info on both fnma and fmcc earnings per share?

TIA

[jog49]

"So how much capital do they need before they can start dividend even minimum?"

Apparently all the money currently on the face of the Earth!

[jog49]

"Freddie made .52 more per share than Fannie! This is why the majority of my shares are in Freddie. I still keep 18 percent of my shares in Fannie. GLTA!!"

Doesn't really matter because Uncle Sugar says the closest you will ever get to that profit is in the report you read!

[DaJester]

"let's get back to what's important: "estimating the future common share price. What is your expected value calculation? You said that you have run many scenarios so it shouldn't be difficult to post their output."

As I've said multiple times... I've already given you all the info I care to share. If you can reverse engineer something, good for you. If not, too bad so sad. I am under no obligation to show you my formulas nor the different scenarios. You can keep asking like an idiot though. I'll just say - keep your eyes on your own paper.

[The Man With No Name]

KThomp contributes facts and data, you and others contribute noise.

[Viking61]

Just read KThomp Rick, that’s what Carney is saying.

[DaJester]

I admire your conviction KThomp. You are correct in that I am not unbiased. I'm only calling you out on the BS hypocritical posturing because that's what you do to others.

"It's funny that you bring up Treasury fearing lawsuits, because it's writing off the seniors that Treasury thought was illegal a few years ago."
Unsubstantiated claim based on hearsay. At no point did Treasury state they thought anything was illegal. Treasury is an entity, not a person. I've said this multiple times and I don't see you producing any evidence to the contrary.

"If you were even remotely capable of logically arguing against what I say then you would do so, rather than resorting to ad hominems and dodging the relevant questions"
I am arguing against what you say. You just refuse to acknowledge it. This leads to me calling you a hypocrite. Cause -> Effect.

"What I want are reasonable and detailed arguments as to why the commons could possibly go beyond $10 or so in the future even if FnF are recapped and released. I have yet to see one."
What you want? Am I supposed to care? We have zero obligation to jump through hoops for you. If you don't like the arguments or basis for opinions posted, you can disagree in a reply, or poop emoji them, or sit there and shake your head quietly. I don't see anyone else calling people out for not providing detailed calculations or filing a lawsuit to back their position. That's utter nonsense.

"And you are incapable of answering basic questions about future lawsuits, even when prompted."
Again, I've answered your questions multiple times. The answers are vague and not to your liking because I'm not Nostradamus. So be it. Refer back to zero obligation statement above.

"At least when I call others hypocrites it's actually correct."
You very well may be correct. But you are also the pot calling the kettle black.

[RickNagra]

What is Carney saying ? Dr. TightCoil and I will put him in his place real fast. We have a bazooka from our workplace at the Ringly Brothers.

[trunkmonk]

oh no, good earnings, markets up, fed is neutral, and psychoRUsCarney shows up and ruins the day. the efforts to pound down the ticker near end of day may just backfire. no one cares, no one is listening, and commons looks like they are headed back to 4s, where they were before the last receivership scare started.

[kthomp19]

As I have stated before, when it suits them, the govt claims the SPS was an investment. At other times that it's a loan.

Wrong. It was always an investment and it was never a loan.

When Fannie states "amounts attributable to Senior Preferred Stock" Fannie is signifying that the SPS is considered a loan.

Wrong again. This statement does not at all imply that the senior prefs are a loan.

Also, as I have repeatedly stated, if the SPS were a loan, it was paid back a decade ago. If it was an investment, then the corporations have always been capitalized, and there's been no need for the conservatorship.

And every time you said it you were wrong, among a whole host of other things you have been wrong about.

[kthomp19]

Day traders and MM still making money. But the actual owners of the companies, not so much.

Treasury is the de facto owner of the companies, having rights to (more than) all of FnF's net worth and income due to the liquidation and dividend preference of the senior preferred shares.

FHFA has total control over the companies as conservator.

Existing common shareholders do not own the companies at all. They have no economic rights and no voting rights. Nothing.

What they do own is the very bottom of the capital stack of companies that are in conservatorship and are hundreds of billions of dollars below their regulatory capital requirements. That does not at all entitle them to any specific percentage (let alone 100%) of the companies once they reach their capital requirements and exit conservatorship.

[kthomp19]

So how much capital do they need before they can start dividend even minimum?

Under the terms of the ERCF, FnF will have to meet their full regulatory capital requirements (minimum and risk-based) plus have at least 25% of the applicable buffer to pay a dividend.

Page 47 of Fannie Mae's 2024 Q1 10-Q form shows that they have a shortfall of $156B to the Adjusted Total Capital requirement of $106B. 25% of the $82B buffer adds another $21B to give the total shortfall to being able to pay dividends: $177B.

$121B of that could be made up in an instant if Treasury decides to cancel the seniors or convert them to commons, but the rest would have to be made up with some form of de-risking, retaining more earnings, or a capital raise.

Fannie's shortfall to the Tier 1 leverage capital standard is $164B. Adding in 25% of the $24B buffer brings that shortfall to $170B. Again, Treasury can wipe out $121B of that shortfall in an instant but the other $49B would have to come from some combination of retained earnings and a capital raise. Those are the only two options given the definition of Tier 1 capital used in the ERCF.



Freddie Mac's 2024 Q1 10-Q form, page 38, shows that:

1) There is a $110B deficit to the base Adjusted Total Capital requirement. Add on 25% of the $51B buffer and the total shortfall to paying dividends is $123B. $72B of that can be wiped out by Treasury but the other $51B shortfall would remain.
2) There is a $124B deficit to the base Tier 1 leverage capital requirement. Add 25% of the $11B buffer and the total shortfall to paying dividends is $127B. Once the $72B of balance sheet senior prefs are taken care of (by cancellation or conversion to common), Freddie would still have to retain and/or raise $55B more in order to start paying dividends.

[kthomp19]

If the warrants have not been exercised, why is the price per share earnings calculated as it includes that number of shares?

This is addressed in Freddie Mac's 2023 10-K form on page 188:

The warrant was determined to be in-substance
non-voting common stock, because the warrant's exercise price of $0.00001 per share is considered non-substantive (compared to the market price of our
common stock). As a result, the shares associated with the warrant are included in the computation of basic and diluted earnings per share. The weighted
average shares of common stock for the years ended December 31, 2023, 2022, and 2021 included shares of common stock that would be issuable upon full
exercise of the warrant issued to Treasury.

There is similar language on page F-58 of Fannie Mae's 2023 10-K form:

We include the shares of common stock that would be issuable upon full exercise of the common stock warrant in the
weighted average shares of outstanding for the computation of both basic and diluted earnings per share because the
warrant’s exercise prices per share is considered non-substantive (compared to the market price of our common stock)
and therefore was determined to have characteristics of non-voting common stock. For the years ended December 31,
2023, 2022 and 2021, the common stock warrant added 4.7 billion shares to weighted average common shares
outstanding.

[kthomp19]

For all you accounting knowledgeable people, (I have a basic understanding), how does FNMA create net worth if all income is sent to the Treasury?

FnF are not sending any cash to Treasury right now, and haven't in almost 5 years. They create net worth by retaining their earnings.

What Treasury gets in return is a dollar-for-dollar increase to the liquidation preference of the senior prefs, but that increase is off balance sheet. Net worth is a balance sheet calculation, so FnF retaining earnings (on balance sheet) while increasing the off balance sheet LP really does add to net worth.

[kthomp19]

Thank you for providing correct answers to counter the blatantly incorrect speculation that is running rampant around here.

[kthomp19]

Advise to not hold your breath. Even if Lamberth flushes the jury verdict down the toilet, it's not happening.

Exactly. If he was ever going to file a lawsuit using his theories he would have done so by now.

If anyone else was ever going to, they would have too. There is nothing to be gained by waiting.

Talk is cheap. Inactions speak louder than words.

In a broader sense, the Litigation End Date in the January 2021 letter agreement is much closer than many realize. Every single case has so far been a total loss other than the implied covenant jury trial. Once all the appeals run out then the legal avenue to forcing Treasury to work towards FnF exiting conservatorship will be closed off, meaning the only way FnF will ever exit is when Treasury chooses to allow them to. As such, the disposition of the senior prefs would be done on Treasury's terms, which doesn't bode well at all for the legacy common.

[kthomp19]

Think about this: FnF are on the hook for these claims - not TSY nor FHFA. In what world are FnF responsible for what’s happened.

The only claim that was at issue in the trial was the implied covenant of good faith and fair dealing, which only applies to the companies and the shareholders. The only reason FHFA was even involved in the case at all is because it made the decision to sign the NWS on behalf of the companies as conservator. That's also why Treasury was not a defendant and was not found to have done anything wrong.

Now think about this: was it set up that way to test what a jury would decide knowing FHFA would be able to swoop in as Conservator nullifying the jury decision under the pretense that FHFA is conserving FnF assets?

No. The Supreme Court's Collins ruling in 2021 was specifically not allowed to be introduced into evidence. The only things the jury were allowed to see occurred up to and including the date of the signing of the NWS: August 17 2012.

If FHFA nullifies this jury decision after the fact they will have gained two things for free: 1. they now know a measure of public sentiment against the C’ship actions, 2. without ever incurring the risk of Treasury funds or a court loss with direct responsibility attributable to FHFA & TSY’s c’ship actions.

They have those things even if they don't get the jury decision nullified.

[kthomp19]

Why would you even respond to him?

An excellent question.

By far the best way to deal with trolls such as Carlos is to ignore them and never respond to them, even indirectly. Act as if they don't exist.

[LuLeVan]

The difference with Amelia is that I sold at a profit. A second difference might be that I sold at a temporary high in the JPS.

[kthomp19]

When I say void, I am referring to my prior reasoning in multiple posts.

Then he is still right because your reasoning in prior posts is flawed.

The current arrangement of LP on the Seniors that increases dollar for dollar of net-worth is just a NWS part 2.

Wrong. The original NWS prevented FnF from building capital. The new agreements with the LP ratchet allow them to build capital. There is an enormous difference between the two regimes, which is why the Supreme Court denied prospective relief in the Collins case.

The SPSPA has been found by the DC courts to violate common contract law.

Wrong. The jury found that the Third Amendment to the SPSPAs violated the implied covenant of good faith and fair dealing. Not the entire SPSPAs.

I believe that should the verdict stand, there is now the ability for injuntive relief based on the terms of the SPSPA itself. I don’t think the agreement will withstand any attempt to collect on the LP or warrants should there be a new lawsuit from any shareholder in any district court just by filing a little tucker act claim for illegal exaction

That makes no sense. All injunctive relief cases have failed and no new ones have been filed. The implied covenant case sought no injunctive relief, so why would it read through to any future case that does? Injunctive relief is a very different ask than monetary relief, and injunctive relief would apply to Treasury who has successfully gotten every case against it dismissed so far.

The only way to make sure one a new case gets brought is to file it yourself. When are you going to do so? Bueller?

[kthomp19]

A recollection of a conversation from years prior, where someone said something and it gets positioned as Treasury said or did something official, when in fact it is nothing more than hearsay.

Wrong. It was not hearsay at all. Calabria was one of two parties negotiating an end to the senior pref overhang, meaning he was a direct participant and his words don't fit the definition of hearsay. In addition, Mark Calabria recently corroborated what he said in his book regarding a senior-to-common cramdown.

You choosing to ignore this evidence means your estimates are not evidence-based. What are they based on, then?

This is just looking like a classic case of you refusing to believe something because it isn't what you want to hear.

[kthomp19]

So.... Just because something is written in an article or a book doesn't mean it's a fact? Got it.

You are taking one specific example by me and making a blanket statement. Stop it with the logical fallacies.

Each instance needs to be fact checked. I actually did some fact checking and found Seeking Alpha's article to be incorrect.

Calabria repeated his preference for a senior-to-common cramdown in this article, so if you're referring specifically to that then the evidence is still on my side.

If you want to go after someone, why not question the one who made the original incorrect statement that John Paulson owns commons?

[kthomp19]

At no point did I claim that I intended to sue anybody.

Which makes your continued discussion of possible future lawsuits that much more hypocritical. Are you really basing part of your common investment thesis on the idea that someone, someday, might bring a lawsuit and that said lawsuit would succeed in such a way as to make the common shares worth appreciably more? That is a very hard needle to thread with many potential points of failure, especially in light of the long string of court losses in the cases against Treasury.

The current sweep of the profits is into the LP.

No, this is wrong. The companies really are building capital. The LP ratchet is not a continuation of the 2012 NWS; this is exactly why the Supreme Court denied prospective relief in the Collins case.

It would follow a similar logical argument that the action does not allow the shareholders to realize the benefits of their shareholder agreement.

The 2012 NWS already removed all shareholder economic rights in the future by making it impossible for FnF to ever build capital. Any amendment to that agreement which extends that extinguishment of value is not cause for future legal action because the extinguishment was already challenged in court. Suing specifically over the LP ratchet in the 2019 and 2021 letter agreements would amount to double jeopardy.

Possibly more so than a cash sweep because the LP sweep means they need to pay down the LP being taken (same amount as cash sweep), PLUS also paying 10% dividends on the LP amount or the entirety of the increase in net worth until they can pay it off.

That makes no sense: the LP is not and never was repayable.

[kthomp19]

In general, the government cannot be sued unless they let you. So yes, FHFA and Treasury have operated with impunity and the GSEs as private entities are the ones that have been targeted.

Sovereign immunity hasn't been the problem in the court cases so far. FHFA and Treasury have tried to get the NWS cases thrown out on those grounds and have failed. The cases ended up being dismissed for other reasons.

This shines the light on the behavior of the FHFA acting on behalf of the GSEs. It's not complicated.

You're confusing simplicity with logical correctness. The only result of this shining of light was that the companies have to pay the shareholders a relatively small amount of money. FHFA was not successfully sued because FHFA itself faces no liability at all.

Only if it's challenged proactively, which I think is very remote. Requested remedy would be preliminary injunction so that the ownership of the equity could be challenged prior to new shares being created and possibly sold to other owners.

Interesting. Does that mean if a senior-to-common exchange happens you think it will be too late for anything to be done about it? The same logic would apply to warrant exercise.

If what you said is true, common shareholders should have filed a lawsuit seeking proactive injuctive relief against Treasury exercising the warrants a long time ago. What could they possibly be waiting for, given that that particular axe could fall at any moment?

Now a blunt question for you: What difference does it make to Treasury to take 92%, 22% or 2% of the GSE equity? What motivation do they have to engage in profiteering on the GSE draws that the taxpayer has already received a +10% return on?

The amount of money Treasury has already received in the past means nothing to them. They publicly value the senior prefs at around $220B as of the most recent Financial Report of the US Government (page 95), and that valuation only takes into account future cash flows, not the past (page 97).

The difference to Treasury between taking a 99.9/92/79.9/22/2% stake in FnF commons is the amount of writedown they would have to take on the books as a result. If they can only sell their stake for say $20B, they would have to take a $200B writedown of asset value, thereby increasing the national debt by that amount. It isn't a small number.