Fannie Mae-No Politics (FNMA)

[FOFreddie]

Nats - Thanks for the perspective.

Another thing we may consider is the impact of Index and Tracker Fund investors since FNMA AND FMCC will have significant market capitalizations. These investors will need to purchase FNMA and FMCC on the public offerings or take basis risk since their mandates are to make returns equal or better than the S&P 500 or other tracker indicies. The S&P500 is a market capitalization index so if a fund is a 100 billion in assets under management the fund will probably have to purchase about 750 million of FNMA and FMCC on the open to avoid the basis risk.

JPM is approximately 1.5 pct of the S&P 500 with a market cap of about $500 billion. FNMA and FMCC will have a joint market cap of around $ 200 to $250 bn so they will be rather large entities with attractive dividend yields JPM dividend yied is approximately 2.6% so as you mentioned the index funds will probably like the dividends of FNMA and FMCC also.

I think the general rule is that index funds will purchase around 30% of the market cap of index components. So if FNMA and FMCC are $200 bn, they will purchase $60 bn - the quesiton is probably the timing.