Fannie Mae-No Politics (FNMA)

[big-yank]

No, many people believe this but it is not the law in a receivership. The hierarchy is straightforward in any court-administered wind up.
1. DIP Financing. This is whatever liquidity needs must be satisfied in order to either re-org or wind up the companies affairs. First priority.
2. Secured financing and debt. This is asset backed and typically includes plant/property/inventory/intellectual property and so forth. Second priority.
3. Secured creditors. These are specific, asset backed agreements pledging rights in a default. Typically these are things like leased vehicles that require return of the vehicle if the lease contract goes unfulfilled.
4. Preferred shareholders. Shares with liquidation preference are entitled to a return up to par value from funds available. This in a FnF wind up would largely come from liquidation of most reserves and from income generated during the wind up period which would likely takeup to two years.
5. Unsecured creditors. Rarely get anything. Maybe some rights offering if a re-org will start a new venture from the ashes.
6. Common shareholders. Last priority. Rarely get anything but a letter from their broker stating their shares have been cancelled.

MBS does NOT rank above preferred shareholder interests because the bonds do not carry a liquidation preference. I expect that the judge assigned to any liquidation proceeding would rule that the long term mortgage assets should be paid out to MBS bondholders under the doctrine of fairness which always prevails in the bankruptcy court.

It might help to think of this from the context that every debtor of FnF has a contractual expectation of getting paid. So, yes, MBS is a contract. It just has no liquidation preference. This is why so many pending suits seeks restoration of preference that they claim was part of the government taking.

Hope this helps clarify things for you.

JMHO.