Fannie Mae-No Politics (FNMA)

[Fully Diluted]

Hi brooge,

by the looks of your post, I see you are optimistic for commons but at the same time between cap req and assuming smaller footprint you see the top at $10?

No.
I see that Watt has even increased the footprint of the GSEs:
- Financing multi-family units
- Raising the credit limit for qualified loans

I believe that Fannie Mae's profits will remain above $ 10 billion a year. Other structural measures will be the focus of the administration:
- Reduce moral hazard
- Promote a level playing field.


Furthermore, I believe that the final rule for capital requirements does not move far from the FHFA proposal.
Here it is:
https://www.fhfa.gov/Media/PublicAffairs/PublicAffairsDocuments/Proposed-Rule-Enterprise-Capital-Fact-Sheet.pdf
Fannie Mae: Total Capital Requirement: $115.0B

For explanation: The FHFA proposes to set risk-based capital requirements. These are supplemented by the Minimum Leverage Capital Requirements. Under certain market conditions, the risk-based requirements are not sufficient.
We are interested in the higher value, i.e. the minimum amount of money that must be raised to meet both capital requirements. That is the 115 billion dollars.

The FHFA determined this sum by carrying out a stress test. The financial crisis of 2008 was chosen as the starting point. The calculated capital requirements would have helped Fannie to survive the crisis without any outside capital.

So far, so good. So why worry about higher capital requirements?
Calabria has in the past put forward various, sometimes radical, proposals on how he would deal with Fannie and Freddie: he would turn them into banks, put them into receivership: he even said that you don't need the entire secondary mortgage market at all - unbelievable, but true.
Unfortunately, Calabria also said that Fannie and Freddie should hold a capital buffer of at least 5% of their total assets. Fannie Mae has $3.2 trillion worth of assets. This would result in capital requirements of $160 billion. That would be $45 billion more than the FHFA's proposal, which would have a direct impact on our share value.


What about Calabria's remarks?
Calabria has made it to the top of the FHFA. With his remarks he made many friends especially on the side of the republican hardliners. There is a lot of talk in politics, especially when it comes to fundamental party interests such as free markets.

But there are good reasons against Calabria's proposals:
- Fannie is not a bank. Its business is less risky. This is also confirmed by the FHFA and Freddie Mac. A capital orientation towards systemically important banks is inappropriate.
- The entire housing market would suffer if the capital requirements were too high: Liquidity bottlenecks, more expensive loans, etc. The risks involved are well known.
- Calabria's proposal would not cover the different risks of the different assets. According to many experts and the FHFA, this is a no go. Risk-based capital requirements are absolutely essential: 1. to determine the real risk. 2. to ensure that Fannie does its business without being influenced by strategic considerations.
- Last but not least, the value of the warrant held by Mnuchin would fall significantly, to the same extent that our shares would fall in value.

In my opinion, the FHFA has already reached the upper limit with its proposal on capital requirements. Its calculations are not adequately transparent. It has therefore had sufficient "room for manoeuvre" to come up with precisely these 115 billion dollars.
The remaining Fannie rescue package is 113.9 billion dollars. I rarely believe in coincidences.
"As of the date of this filing, the maximum amount of remaining funding under the agreement is $113.9 billion."
http://fanniemae.com/resources/file/ir/pdf/quarterly-annual-results/2018/q32018.pdf
Page 6 of 113

Soon we will hear the FHFA's final rule on capital requirements. Until then all that is speculation - albeit nicely decorated and plausible. But one simply cannot rule out that higher capital requirements will be imposed under Calabria.
Fortunately, Otting is willing to act to advance the Trump administration's plans, which Calabria only has to continue. Those were Otting's words! So Calabria could save his face...

GLTY