Fannie Mae-No Politics (FNMA)

[kthomp19]

it is actually possible to maintain the treasury line of credit outside the conservatorships.

Possible, yes. But I don't think that Calabria or Mnuchin would want to do things this way, for reasons I have pointed out before.

This text passage of the 2018 10-K will certainly help you.

I don't think this passasge supports your argument. In fact, if any new money is needed for a recap, the seniors will need to be cancelled or converted to another form of equity, and the warrants will need to be either cancelled or exercised.

If the administration thinks that in many aspects it would be better to release the companies before recap

If this is somehow true then I suppose I would agree with you. But Calabria believes that a conservator's job is to bring the companies to a sound and solvent status (which includes meeting all regulatory capital requirements). That means that a conservator who releases the companies before they are fully recapped has failed at his or her job.

This is his same rationale for why the NWS is illegal (it makes the conservator's job impossible), so if one wants to argue that Calabria's views on recap before release have changed, then his views on the NWS might have also, especially because both are based on the same reasoning.

Release before recap also violates Mnuchin's desire for taxpayer safety, which is maximized if a full recap precedes release.

As long as housing finance reform is on the agenda, one can only protect the taxpayer by issuing preferred shares, as the eventual value of the companies is not yet known.

I strongly disagree with the "only" part of this. Common shares work as well, and work better. And while I agree about the eventual company valuation uncertainty, I don't think this will prevent a secondary common share offering. It will only drive the price per share down.

A pref-only recap is also not the magic bullet for current common shareholders that it might seem like. RuudG made a couple of great posts showing why. Just like non-cumulative preferred shares, common shares have two main components: dividend rights (if the company chooses to declare one) and liquidation preference (at the end of the line). We know that the senior prefs, when issued in 2008, lowered the value of the juniors and commons. The NWS hurt the value even more. Issuing a ton of new juniors will do something similar to the commons; only thinking about their dividend rights doesn't paint the whole picture.

but would also be feasible within it with a 4th amendment.

No amendment to the SPSPAs is needed to do an equity raise, either preferred or common. Still, I expect the SPSPAs to be nullified upon completion of the recap process and subsequent release.