Fannie Mae-No Politics (FNMA)

[The Man With No Name]

Treasury listed multiple options, not just one:
- Eliminating all of seniors
- Eliminating a portion of seniors
- Exchanging all of seniors for commons
- Exchanging a portion of seniors for commons
- OR exchanging for OTHER interests

The other interests is what intrigues me.


https://home.treasury.gov/system/files/136/BlueprintonNextStepsforGSEReform.pdf

Quote:
Set Commitment Fee for Ongoing Government Support: Treasury supports legislative
reform that authorizes an explicit, full faith and credit federal guarantee for the GSEs’
mortgage-backed securities. Taxpayers should be compensated for this support consistent
with the pricing for guarantees of similar risk. Today, taxpayers support the GSEs through
$254 billion of remaining funding commitments under the PSPAs. Under the PSPA changes
announced today, to compensate taxpayers for this support, Treasury and FHFA will
determine and impose a periodic commitment fee once the GSEs have retained capital up to
their regulatory capital requirements under FHFA’s new framework.

Fundamentally... the PSPAs are a line of credit. Its not the same as how the JPS functions.
Here they are hinting at what treasury WANTS. They want a periodic committment fee for an explicit guarantee. Just to remind everyone of historical context. There has always been an implicit not explicit guarantee.
- If the PSPAs are vanquished from options 1 through 4 from above, there would be no periodic commitment fee.
- The periodic commitment fee comes as an exchange for the undrawn remaining funding commitment of $254B from the PSPAs.

If all of the PSPAs are converted to commons, the funding commitment would disappear.
The same is true if the PSPAs are simply just 'eliminated'.

Treasury will want to maintain that funding commitment in exchange for a periodic quarterly fee. That is where I'll be placing my chips.

'Other interests' are likely new warrants. Could be new debt or some convoluted new security, both of which would dampen the value of the Newco. I'm 99.999% confident that all or a portion of the SPS will be converted to commons. And the reason being is because it's what makes Treasury the most money and it can moot almost all lawsuit liability.

It appears Treasury believes the law has to be changed for them to retain a commitment fee....because isn't the whole purpose of the minimum statutory capital buffer...2.5%...meant to eliminate any need for a Treasury commitment? Further, in some future recession, if the GSE's capital buffer level falls to 2.4%, 2.2%, etc., do you really think the Feds wouldn't take that opportunity to throw them back into conservatorship? That's why I think the capital level rule will remain higher than the minimum, in essence, a buffer on top of the buffer as insurance against any future conservatorship.