"Trump, Mnuchin, Calabria, Otting, clearly want to recap and end conservatorship." I stand by this statement, however i will concede that it is an oversimplification.
Full Private ---- Old System ---- Conservatorship ---- //----Receivership New Entity ---- Nationalization
Government Guarantee
No Guarantee -- "Implied"/limited --- Express through SPSPA -- Expressed ---- Full Faith and Credit
Over this spectrum is Regulation, capital requirements, affordable housing social programs, multifamily programs, investment banking, retirement systems. These are just some of the factors weighing on this problem. As you see risk allocation, political views on social programs, the constitution, bankruptcy laws etc. are all factors.
Let's start with what Trump really wants. He wants to privatize the entire system, this is outlined in his "Delivering Government Solutions in the 21st Century," - "The proposal would remove the Federal charter from statute and fully privatize the GSEs." In this plan FNMA would be recapped and released to compete with new entities. There would be NO Gov guarantee. BUT, you cannot always get what you want. Why wont this work? It would require congress to remove the charters. By removing the charters the affordable housing mission is GONE, Zero leverage over any of the entities to give sub-prime, low down payment type loans. No way to enforce the 30-50 DTI ratio. This also puts the fixed rate 30 year mortgage at risk, and Congress will not do it.
Old system - This is actually the compromise, negotiations as to required capital levels, DTI ratios and down payments of conforming loans, the level of government backing. But, the companies are private. This is where the FNMA Long live. Capital will be required and cannot be obtained with the governments Senior preferred Stock in place. Why not receivership/new entity? Bankruptcy laws and the 5th amendment, while the court cases have largely unsuccessful this has been due to ripeness of a takings claim the taking will have actually happened. "notwithstanding the laws of Bankruptcy" Receivership will trigger bankruptcy laws and proceedings, this will call the whole damn thing into question, and i like our chances here. How capital is raised and dilution is the valid question. But if you screw over past investors, how easy will it be to raise capital?
Receivership, as discussed bankruptcy laws would have a big part in this, the validity of the Senior Preferreds will be called into question especially since they have created an obligation for the government to provide up to 100 billion extra dollars. Breach of contract bro. Here is the RUB. If the government places FNMA into receivership and even one cent of that 100 or so billion dollar line of credit is left then the entire Net Worth Sweep will lack consideration, like for real. The unforeseen consequence of the NWS is that it essentially BARS receivership until the governments commitment is extinguished. See the Office of Legal Counsel 2009 opinion on whether or not the SPSPA created an obligation on the part of the government.
Nationalization - full risk, 5th amendment as with receivership, and my previously posted comments from Waters.
So what does Trump and Co want? The closest thing to full privatization as possible, ie old system. What does Waters want, social programs and 30 year mortgage and some private capital to buffer.
But what about the Crappo plan - you mean the worst of both worlds? explicit gov backing to private unchartered companies. fun times.
But Charlie Gasparino said they were considering the "Milken Institute Plan" - Sit down, this plan says start building capital and then figure out what to do. This isn't a plan. This is literally the first step in ANY feasible plan to recap release.
For some fun reads try: OIG, OLC, Department of Treasury (pay close attention to the current "market value" of the SPS (hint: the lower it is the easier it will be to write off), White house, CBO report on how dividends from GSEs are accounted for differently between CBO and Treasury, Collins case court filings, All the court filings, Read the constitution. You get the idea.
Lastly this $#IT takes time, it's politics, its complex. Long till 2029. Don't worry about your money, it will be in my pocket soon enough.
AI
