Fannie Mae (FNMA)

[Fully Diluted]

Fannie, Freddie and the Corona Crisis

Bless the one who has Fannie and Freddie!

The USA have two towers of strength - Fannie and Freddie. Not only do they provide the country with a healthy housing market in good times. Especially in times of crisis, their systemic importance becomes very clear: With their almost unlimited liquidity, they not only keep the housing market going, the house builder in his own four walls, but also support the financial markets. In our globalized world, there is currently no company that is even remotely as important!

FnF now grant payment deferrals to borrowers or adjust existing loans to avoid foreclosures. They continue to provide the housing market with liquidity. And their $4 trillion securities continue to enjoy an implicit government guarantee, making them as safe as US Treasury bonds.

While it may be of interest for banks to hold foreclosures, FnF would be cutting their own throats in the process. This is because their capital requirements and thus their existence depend heavily on property values. And they have no other significant sources of income that could benefit from falling property prices. Apart from liquidity, this is the reason why they were created by the government. And that is the reason why they still exist and will continue to exist in the future.
Because if the American housing market collapses, the USA will plunge into a deep crisis and with it the entire global economy. This can never and never will be left to private financial institutions. The model of the (two) government-sponsored enterprises is leading the way here and gives politicians decisive influence without having to declare a national emergency.

Can FnF go bankrupt?
Any company can go bankrupt. But FnF would be the last. The Treasury and also the FED will do everything to prevent this. The two companies still have about 200 billion dollars in bailout money at their disposal. And for the time being, the companies are only threatened with book losses, which will be reversed when the markets return to normal. It will have to come very hard for the "Twins" to incur permanent losses from their operating business. Moreover, in recent years the companies have specialised in risk transfer transactions, which account for a good quarter of their business volume and allocate the first 10% of the loss to the contracting parties.

Will FnF be nationalized?
Will Green Party build nuclear power plants?!
And even a new president cannot nationalize FnF as soon as they are released from the Conservatorships by Consent Decree. Calabria can do this practically anytime if Mnuchin plays along to keep the line of credit up.
Of course, in principle, any company can be nationalized - at fair market value.

Has anything fundamentally changed in Fully's old analyses and forecasts?
No. Consent Decree will come at the end of the year. Perhaps the presumed capital raises will be carried out later. But that could even be in the interest of the common shareholders.

Is the coronary crisis perhaps even an opportunity for FnF and its shareholders?
We now have a real stress test situation. If FnF masters this, which I have no doubt about, it will have a positive effect on their image and create confidence in the companies. It also shows how high the capital requirements actually have to be and which screws still need to be tightened. Calabria will take a close look at what is happening before he brings out his Capital Rule.


Stay healthy, Fully