In order to pre-un-raffle the SCOTUS decision, let’s look at what happened and make more or less sense out of it, for that we need to drive in reverse
To exit conservatorship in the coming months, they need to restructure. Treasury holds $120,836M and a warrant for 79.9%, Fannie also has $19,130M in junior preferred outstanding, and $25,259M in stockholders’ equity, then their equity position with treasury: in the equity the government has in fannie we can instantly see the government is a majority shareholder, preferred shareholders have $19B and common shareholders have 20.1%
and on the invested money, treasury wants a 10% annual interest that will come due each quarter(~1.78%) on the outstanding SPS Then we look at the PSPA, this is a contract established to wind down the companies, while the FHFA was appointed as conservator (not receiver) never the less the FHFA-C agreed to the terms to wind them down.
Next in 2012 they engineered the 3th amendment that gave all future profits to treasury, to make sure they never would emerge from conservatorship in its prior form. Conservatorship by design should be a temporarily thing, never the less they want the conservatorship to be permanent until the entities emerged into something else, while they change the regulation at the same time, this deal also made sure all profit from the companies in the future would belong to the Treasury Forever, as they would like to wind down the companies
So the Equity they hold upto 2012 was $116,149M (+1B initial), this Equity is legal, holding that a conservator can legally duly appoint itself, without any statutory control, and implement a “wind-down” contract “the PSPA”, while at the same time it is protected under a conservatorship statute(courts cannot take action). the 3th amendment holds that the dividends fannie paid to treasury $165B during 2012-2019, ($20B 2008-2011) belong to the government because the amendment clearly tells this is the case
so to sum-up: $117,149 Fannie received from Treasury $165,910 Fannie paid in dividends from 2012-2019 $19,813 Fannie paid in dividends from 2008-2011
So then how do we restructure this Equity? the SCOTUS will tell us if “for cause” is legal and if the 3th is legal, so in short is $165,910 & $19,813 legal, on “for cause” Collins and Treasury agree so we know $19,813 is not legal, so it is the question if they can keep this amount, but say for now they can Then we have the 3th amendment, this is illegal no question about it, under this agreement fannie gave $165,91M to treasury, if it is void the funds will have to come back, Collins suggest to pay down the SPS, so that would be 165,910 – 117,149 = surplus $48,761M and there would be no SPS outstanding, also when that happens the government’s stake initially stated in their 10-K as $120,836 will be zero and the shareholder’s equity will increase with this amount, meaning not $25,259 but $74,020 Then the new restructuring looks like this: $00.000 Treasury $74,020 Shareholder’s equity $19,130 preferred stock
Then we have the Warrant for 79.9% of the common stock, this warrant when obtained legally by the itself appointed director who is not accountable to any of the 3 branches in the separation of powers, gave treasury a 79.9% warrant, for this to become legal, we first must wait for the un-redacted files (page 77 for Freddie and page 81 for Fannie) because the price at issuance was estimated $3.5B (estimated by fannie mae) but the boards agreed to give away the $3.5B the scope of why that happened first needs to be un-redacted, as that would breach the BOD duties http://www.treasury.gov/press-center/press-releases/Documents/warrantfnm3.pdf
Then of course with the canceling of the SPS, the PSPA is changed and by that it is fulfilled, the government states in the PSPA 6.6. “Disclaimer of Guarantee.” This Agreement and the Commitment are not intended to and shall not be deemed to constitute a guarantee by Purchaser or any other agency or instrumentality of the United States of the payment or performance of any debt security or any other obligation, indebtedness or liability of Seller of any kind or character whatsoever”
So it logically follows when the government sold its share in Fannie Mae the explicit became an implicit guarantee, when the conservatorship started they made a contract with 6.6(above) which clearly states, it does not guarantee anything, the guarantee given is a specific amount, so it does not give explicit guaranty to the then $5.2T market share, so if the (partial) government backing is absent, the implicit guarantee is back (on the now $6.4T) just the way it was before the conservatorship and nothing changed at all. The government wants to make money on the implicit guaranty they give, however, this is not possible as implicit guaranty is not a guaranty, and therefore cannot be given a price (like an insurance company you pay, that “might” insure your house, or not) Then still a lot is unknown, but for sure we know the 3th is illegal and the PSPA is illegal because it cannot be paid down, given those 2 facts, the easiest way out is to declare the SPS paid and void the amendments and contract, But SCOTUS will let us know soon enough
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