Fannie Mae-No Politics (FNMA)

[big-yank]

The debt will NOT trade lower because there is almost no secured debt on the books. Fannie Mae is holding mortgage assets with as much as 29+ years of P & I payments due it, with a default rate at a bit above 1%. That means debt lenders with secured positions are golden. Next come the preferred shareholders in liquidation preference, both senior and junior preferreds.

THEN come the MBS holders whose paper carries a guarantee from Fannie or Freddie. They rank below junior preferred shareholders because their "expectations" for payment are not secured by equity, just the assurances of the GSEs.

We can all argue until the cows come home about the rationale behind this hierarchy of "who comes first"... but the law says pfd shares get paid before MBS bond holders. And debt holders get paid before preferred shareholders. That's the law. And why I own pfd shares... not wanting a goose-egg in my investment account ledger.

NO debt will get dinged here. And very little pfd equity will get dinged, either.

JMHO.