Fannie Mae-No Politics (FNMA)

[FOFreddie]

Agreed - JPS Par plus past divs are really small potatoes in the future captial structure of the GSEs. The CBO has an Equity Value of $ 434 bn and a 2025 outside capital requirement of appoximately $ 75 bn. JPS Par is around $ 30 bn and even if you inpute a 6% div since 2013 you are looking at a JPS value of approximately $ 50 bn in $ 434 bn projected equity value. Common should get its 20% as a settlement ( 434- 75 -50 ) which would be about $ 62 bn between FNMA and FMCC. The UST would be left with about $ 250 bn before the required dilution to raise outside capital which also would impact common in the near term.

The cramdown path is totally unreasonable and is financial malfeasance. The biggest risk to the UST net equity value is the Duration risk in the required rate of return for outside capital whether it is common or preferred. The underlying GSE portfolio has negative convexity ( which is great since weighted average lives of guarantee fee income streams will extend as rates rise) but any new JPS or the required rate of return to new equity has gigantic duration risk. Treat everyone fairly and start raising capital now while interest rates are still low.