Fannie Mae (FNMA)

[kthomp19]

So based on this and your previous post on the limits of what the CFC can do, the best we can hope for from Schwartz is $125B; CFC does not have the power to provide additional remedy, such as writing down the SPS or enjoining further sweep payments, correct?

If the NWS somehow restarts then perhaps the USCFC could enjoin future payments. Retrospective relief like writing down/off the seniors lies outside of their jurisdiction, though.

A NWS restart would also run afoul of the Supreme Court's Collins ruling, where they denied prospective relief due to the existence of the fourth SPSPA amendment that turned off the NWS until FnF hit full capitalization. I don't know what would happen if Biden (via his appointees: Yellen and the FHFA director) tries to restart the NWS earlier, but it could cause them a huge headache.

It would be the height of irony if Biden's FHFA pick drastically lowers the capital requirements just so that the NWS turns back on sooner, still denying any economic value to the existing shares.

Would we then still be buggered after a takings victory, since $125B of capital hardly matters against $200B of senior liquidation preference that keeps growing every quarter and cannot be paid down? I'm struggling to see how juniors unlock full value with a takings win.

You're right: even if Treasury is ordered to pay $125B to FnF, the seniors would still be on the balance sheet and thus core capital would still be greatly negative.

The seniors actually can be paid down, but only through stock offerings. If FnF can retain enough earnings to get close to a reasonable capital standard, they could conceivably sell enough shares to pay the seniors off entirely. However, those buyers would want basically all the common equity because the sums in question would be enormous.

One key thing to note is that the senior pref line on the balance sheet doesn't increase as FnF retain earnings. That means there is an eventual path to meeting capital requirements, even with the senior pref liquidation preference increasing all along.

Would you say the real bet is on an administrative solution--gov't trying to recoup that money, as you mentioned--or are there avenues to unlocking value that don't involve escaping conservatorship completely under what may be a hostile administration?

Under a hostile administration the only thing we can do is wait for a less hostile one. The court case thesis is on life support and Congress getting involved makes a fully legal no-recourse wipeout of existing shareholders possible.

The government getting money is the biggest incentive they have to not just stick with the status quo. I believe the Collins ruling essentially enshrined the "no NWS until full capitalization" part of the fourth amendment, meaning that the only way the government can get money out of FnF is by monetizing the seniors and/or warrants (outside of lower cap rule shenanigans as above). That's the path to the juniors unlocking full value: if the warrants are to be worth anything at all then the juniors are worth full par.