Fannie Mae-No Politics (FNMA)

[kthomp19]

Can the NWS be re-applied?

I don't think so.

The letter agreement gives Treasury 2.5% (10% annualized) of the senior pref balance or the increase in net worth every quarter once full capitalization is hit, whichever is less. That's different than the full NWS because conceivably (though not realistically) FnF could make enough money to pay the 2.5% and keep the rest. The original NWS didn't allow this.

Page 4 of the Supreme Court's Collins opinion has this to say:

(ii) The shareholders’ constitutional claim is not moot. After oral argument was held in this case, the FHFA and Treasury agreed to amend the stock purchasing agreements for a fourth time. That amendment eliminated the variable dividend formula that caused the shareholders’ injury. As a result, the shareholders no longer have any ground for prospective relief, but they retain an interest in the retro-spective relief they have requested. That interest saves their consti-tutional claim from mootness. P. 19.

To me, this means that if the "variable dividend formula" (the full NWS) would ever be reinstated, it would run afoul of this ruling.

However, in the current circumstance the senior pref liquidation preference will be enormous by the time FnF hit full capitalization (if they reach it with only retained earnings). The 2.5% of that per quarter would dwarf FnF's earnings. So it would be a de facto NWS anyway, but would conform to the Collins ruling.