Fannie Mae-No Politics (FNMA)

[Ripcord01]

Preferred Stock...is almost a misnomer...it is debt. So unless there is a clause for conversion in the issuance of the preferred stock to be able to convert to common shares (Buffet did this with his Bank of America deal)conversion may not be an option that can be forced.

There is a redemption value for preferred stock and there is a dividend like yield for preferred stock...but as you stated perfectly those dividends wont be paid anytime soon. Preferred stock does not have voting rights. Common stock does. The GSEs after conservatorship will have a fully function corporate board. Who will that board report too...Common stock holders.

So if the JPS do not get some love in the conservatorship exit agreement. They will most likely be linger at current levels. IE excess dividends paid to Treasury go to JPS shareholders to redeem the those shares. The interest rates on those JPS will have to be refinanced..

The most likely scenario is for the GSEs to refinance the preferred stock debt. Offer to redeem the JPS for cash... GSE can borrow from at a much lower rate than the preferred shares and redeem the preferred shares. If the GSEs are able to borrow from the FED at current rates like banks then they will be able to do refinance of the century deal on the preferred stock debt....Some of the preferred stock has rates of 8.25 or more...imagine borrowing at 1-2 percent rates...what that will do for stability of the GSEs long term.