Fannie Mae-No Politics (FNMA)

[capitalismforever]

Been awhile since I've visited the board. Hope everyone is well. Not sure what's all been talked about since I've been gone. Just wanted to touch on one thing quickly that some may already know. The NWS. I have my personal belief in regards to whether it will be stopped or allowed to continue. However, that's pure speculation. I want to address what isn't speculation: If the NWS isn't stopped and what it's impact could possibly be.

Currently, deferred tax assets account for $33.5b on the books. They are accounted for using the effective tax rate of the company. In Fannie Mae's case, that amount is 32.8%. Currently, Trump is pushing for a 15% corporate tax while Paul Ryan is pushing for it to be 20%. Taking the higher figure we can account for the effect it would have against current DTA value.

The math is quite simple. Dividing the current DTA book value by the effective tax rate produces the timing difference between book value and IRS cash taxes. That amount is $102.13b. Then, readjusting the amount for the new tax rate of 20% produces the new DTA carrying value of $20.43b. The difference between the new book and the old becomes $13.07b. That is the amount that must be written down "in the quarter the new legislation is passed" (not when it takes effect).

For a company that produces between $10b-$12b per year, you can see that a $13.07b impairment of deferred taxes could be devastating; although temporarily. On the balance sheet, equity is also discounted by the same amount. The difference between current equity and a DTA impairment could push the entity into requiring additional funding from the Treasury.

Because 90% of wallstreet value earnings rather than businesses, this could produce a short term deficiency in the trading shares of the GSE's.

Discuss.