Fannie Mae-No Politics (FNMA)

[obiterdictum]

Freddie Mac Consistently Reports "Conservatorship Capital" At the end of 6/30/19 it was $51.7 bn. See the return of Conservatorship Capital Analysis in the attache:

http://www.freddiemac.com/investors/financials/pdf/2019er-2q19_release.pdf

Not sure if this is regulatory capital but I would imagine FNMA has about 70 to 80 bn if FMCC has $51 bn. All together probably geting close to 125 to 150 bn number. FMCC could go first and issue loss sharing CoCo type bonds for most of the capital. JPS would convert to common. Treasury exercises warrants and Shareholders including UST and American Funds could authorize the restructuring via a shareholder vote. Hold outs could litigate.

Conservatorship capital is not regulatory capital. Conservatorship capital is the capital requirement devised under the Conservatorship Capital Framework (CCF) that was completed in May 2017 and is the capital required during the conservatorship for Freddie Mac.

"The CCF is the foundation for FHFA’s proposed capital regulation. Although the capital requirements in the rule would need to be suspended after adoption of a final rule because the Enterprises remain in conservatorship and are supported by the Treasury Department through the PSPAs which limit their ability to retain capital,..." See: https://www.govinfo.gov/content/pkg/FR-2018-07-17/pdf/2018-14255.pdf p. 33313, middle column, bottom.

Freddie Mac adopted the CCF becuae the existing regulatory capital requirements were suspended by FHFA during conservatorship. The CCF is used "for internal capital measurement to evaluate business decisions and ensure the company makes such decisions prudently when pricing transactions and managing its businesses. This framework focuses on the profits earned versus an estimated cost of equity capital needed to support the risk assumed to generate those profits."

"Consequently, we refer to the capital needed under the CCF for analysis of transactions and businesses as "conservatorship capital." See: http://otp.investis.com/clients/us/federal_homeloan/SEC/sec-show.aspx?FilingId=13561786&Cik=0001026214&Type=PDF&hasPdf=1 p. 49

Thus, conservatorship capital is not the same as the regulatory capital required before exiting the conservatorship and post-conservatorship.

The regulatory capital rule has not been finalized.