Fannie Mae-No Politics (FNMA)

[The Man With No Name]

What are your thoughts about the CBO White Paper:

https://www.cbo.gov/system/files/2020-08/56496-GSE.pdf

This seems to be in line with the Brookings report except I think the Brookings authors would like to see UST cash out earlier and use the money for housing programs - thoughts?

The CBO paper has a lot of generalities but overall, it boils down to what the government thinks is best for the government. They could take a haircut on their SPS. They may just wait for a 100% cash out.

What I think they will do is exit conservatorship sooner rather than later. The government has repeatedly said they won't until all the lawsuits they think are 'material' are finalized. They could set aside a litigation reserve (a cushion just in case of a shareholder lawsuit win) on top of the capital reserve requirements. And they could take that reserve out of the SPS's liquidation preference in exchange for equity. That's what I ultimately think will happen. I think the government will take a mix of cash out, exchange for debt, exchange for equity...a combination of those.

And since legacy shareholders (anybody other than Treasury) can't file a claim unless the Conservatorship is converted in a Receivership, I think FHFA won't convert it so they don't have to deal with legacy shareholder claims. Then the government can do whatever they please that won't give rise to more lawsuits. I expect the JPS will get face in cash, and I expect commons to be diluted into oblivion with the government holding more than 80%, then as part of the re-cap, a reserve split will take the share count back down and the government will retain whatever percentage is not sold with the re-cap.

The Brookings report is garbage.