Fannie Mae-No Politics (FNMA)

[kthomp19]

I foresee that they will allow a credit of $125 billion or so to be applied to the GSE's books and core capital.....without the money actually being immediately returned by the treasury.

I don't see this happening at all. The purpose of capital is to be in a first-loss position, and a tax credit doesn't absorb losses.

By law, core capital is retained earnings plus non-cumulative preferred equity plus common equity plus additional paid-in capital. Which of these four things would be increased by such a credit?

An easier solution is to have Treasury convert the seniors to commons, sell those commons, and pledge to give FnF the first $125B of the proceeds. Treasury never has a net cash outflow and core capital ends up being right around Calabria's standard of $152B.