Fannie Mae-No Politics (FNMA)

[big-yank]

Replace the GSEs with chartered, state-regulated insurance companies. This has nothing to do with big banks. Fannie and Freddie preferred shareholders get 2/3rds of the equity in the new companies, and a rights offer to purchase another 1/3. All up, that provides $52 billion with which to assume ALL future MBS guarantees with sufficient capital to guarantee $1 trillion in new, privately insured paper. No dividends will be paid new company equity holders (old preferred shareholders) for five years, providing a window to recapitalize and sustain the new enterprises. Affordable housing initiatives remain in other parts of the government portfolio via FHA, Ginnie Mae, etc.

All old loan income and old MBS responsibilites remain in place in Fannie and Freddie's enterprises as their platforms get wound down and eventually cease operation. Government would own 79.9% of income generated by the aging GSEs and common shareholders would retain 20.1% equity position. There would be no need for further recapitalization because all new MBS guarantees would be at the risk of private investors in the new companies.

This IS the Fairholme Proposal. It has NOTHING to do with any $50 per share offer of any kind. My source for this presentation, which I have periodically posted on this board for around two years, was the Wall Street Journal. Claims otherwise are just garbage.

http://online.wsj.com/public/resources/documents/FairholmeOffer.pdf

This proposal was never advanced or squashed by government, to the best of my knowledge. Barring some Congressional intervention, this proposal or any variation there-of would most likely only be practical in a receivership environment in early 2018. This eliminates the common equity holder objections to doing such a deal because a court-ordered reorganization inevitably cancels common shares.

JMHO.