Fannie Mae-No Politics (FNMA)

[navycmdr]

Accounting Takeaways

The basic premise behind the accounting takeaways is that the Treasury can't use an argument to its advantage on the front end and ignore its existence on the back end. For a bullet point summary see here.

All of this cash profitability is in stark contrast to the actions by the FHFA that required audit approvals from Deloitte. The following happened in Q3 of 2008. Note that the US Treasury took Fannie Mae into conservatorship on September 7, 2008.




The GSEs were ordered to absorb underperforming and illiquid assets from financial companies as evidenced by Bloomberg:



On a restated basis, the lowest Fannie Mae's net capital position gets is $19.7B, demonstrating that Fannie Mae's draws were solely a result of aggressive non-cash accounting reserves:

However, in an excerpt of a deposition unsealed Monday, ex-Fannie Mae chief financial officer Susan McFarland said she had met with Treasury officials on August 9th, 2012, days before the change to the bailout terms, and told them that Fannie would be profitable for the foreseeable future.

Ms. McFarland said she “even mentioned the possibility that it could get to a point in the not-so-distant future where the factors might exist whereby the allowance on the deferred tax asset would be released. We were not there yet, but, you know, you could see positive things occurring.”

As of early afternoon Tuesday, shares of Fannie and Freddie had risen about 10%.

The released portions of Ms. McFarland’s testimony are supportive of shareholders’ claims but are unlikely to be dispositive.