Fannie Mae-No Politics (FNMA)

[kthomp19]

How are they going to implement a recap and release with all the outstanding litigation?

Even though Calabria and Mnuchin are not in charge anymore, their January letter agreement gives a lot of insight into the thinking of the DOJ, which has defended the NWS and such under administrations of both parties and likely hasn't changed its views since the inception of all the lawsuits.

That agreement said all outstanding litigation with a collective total liability of $5B or less to Treasury doesn't have to be resolved prior to release, everything else does. That includes all COFC derivative cases and Lamberth's case. Collins is only asking for the seniors to be cancelled or converted to common (i.e. no cash outlay by Treasury), and the other cases regarding the constitutionality of FHFA's structure (Rop, Bhatti) are basically in the same boat as Collins now.

The agreement also says Treasury has to exercise the warrants in full before FnF can exit conservatorship. Combined with the above $5B provision, it's clear that the DOJ doesn't see any lawsuits over warrant exercise costing Treasury more than $5B. That agrees with what I have been saying all along: Treasury's liability to common shareholders after warrant exercise is capped at 1.8B shares times the post-exercise share price drop.

If the BBB fails or gets paired back substantially that could be a catalyst to find ways to fund affordable housing via monetizing their 'investment' in the gses.

It would be awesome if we could get any FnF shareholders that are residents of West Virginia or Arizona to write Manchin and Sinema to tell them they could cut $100-150B out of the BBB and use Treasury's monetized FnF equity for housing instead.

But looking at the 2022 scorecard, it looks like they are clearly focusing on using the gses to subsidize affordable housing at the expense of a capital rebuild.

I'm not surprised at all that the TCCA fee got extended. Congress as a whole clearly views FnF as a piggy bank no matter how much Toomey hates it.

I hope the government seriously takes steps to exit conservatorship but right now I just don't think it's their main priority.

I agree. Outside of monetizing their equity stake, Treasury has no reason to let go of FnF any time soon.