Fannie Mae-No Politics (FNMA)

[FOFreddie]

Hi Kthomp

Regarding your SPS to Common conversion scenario - doesnt this set up nicely for a possible settlement of the derivative liability suits currently in Sweeney's court?

UST could convert SPS to common and then sell common back to FNMA as a settlement for the derivative claim. This would remedy or mitigate the dilutive aspects and let FNMA sell the retired common shares back out in the market place to raise new capital without dilution.

For example if the SPS FNMA face is $75 billion - UST Treasury could convert to common - transfer the newly issued common back to FNMA as a $75 billion settlement and FNMA could resell $ 50 bn of the redeemed shares back out to private investors for new capital. All existing common share from the redeemed but not resold $ 25 bn. UST Treasury could also offer JPS and existing common some of their warrants as part of the settlement. UST would make additional returns to the extent they keep warrants. The SPS goes away - new capital is raised and UST warrants are partially distributed as part of a settlement with JPS and existing common.