Fannie Mae-No Politics (FNMA)

[Cubshawk]

YanksGhost

No, sorry but that is not how the process works. FHFA elected to suspend capital requirements in 2008. All the GSE capital was thereafter "removed" and apparently swept to U.S. Treasury in the quarterly sweep process. Unless UST has some Epiphany and elects to return that capital... which I have long proposed and advocated for... the GSEs have $3 B, each, and do not meet the standards for either core or critical capital required under Basel III Accords, prior OFFHEO standards or the levels imposed under Dodd-Frank for banks and systemically important financial institutions. Moreover, at current income run rates, both GSEs would be likely to remain severely undercapitalized for many, many years depending oin the new levels about to be set by FHFA. The $180 B level which is frequently mentioned would take about NINE years to amass.

FHFA only recently undertook to set capital standards for GSEs, despite HERA imposing a directive to make this initiative an absolute imperative since 2008.

In a technical sense, both GSEs today are critically undercapitalized and could be placed in receivership... as improbable and unacceptable as any such outcome might be to me. But it is entirely possible.

My opinions, only.

I don't think anyone is arguing that they can be placed in receivership - the debate is if it makes sense to.

The risk associated with receivership far outweighs the minimal gain they can achieve by a workout that avoids one (IMO of course).

Oh - by the way - the government can easily keep it's credit line open to back the companies as they build capital - and therefore the issues with being under-capitalized are mitigated. That aspect of a recap isn't so complicated.