Fannie Mae-No Politics (FNMA)

[kthomp19]

We have been reminded that the SPS cannot be converted to commons.

This is false. We have been reminded of the exact opposite by page 27 of Treasury's Housing Finance Reform Plan of 2019. There is no way a report like this gets released without signoff from the Department of Justice, meaning the DOJ thinks such a senior-to-common conversion would be fully legal and that Treasury would face little if any legal liability as a result. Otherwise that possibility wouldn't be in there. The same argument applies to a junior-to-common conversion as well.

We would have to payoff the amount owed in cash or another way.

"Another way" would be a conversion to common, you know.

Treasury will never be able to realize the full amount of the seniors in cash, though. To raise outside capital the seniors must be restructured, and the senior pref liquidation preference rises with retained earnings so the seniors would still be impaired in any liquidation.

Maybe they will sell the warrants instead of exercising them to pay off the balance. 79.9% of the GSEs for about $220-230B.

Who would pay anywhere near that much for the warrants? And what would that have to do with "pay[ing] off the balance"?

That would be good news because it will likely mean the restructured GSEs will be probably be worth about 300b which is below the 400b max.

I think $300B is a bit high for FnF's post-release and post-capitalization market cap, but not unreasonably so.

Even then, FnF would have to raise around $115B in capital to hit Sandra Thompson's minimum requirement (without the buffer), and that amount only goes down a few billion each year because the requirement is tied to the asset base, which keeps rising. Raising $100B would greatly dilute Treasury's 79.9%, which is why most estimates of the value Treasury could actually realize from the warrants are in the $50-100B range. Personally, I think it would be more like $30B, but I'd rather the administration think $100B so they get the ball rolling.

If that is the case, we all should be good. Cs and Ps. One big happy family instead of Ps and Cs bashing each other.

Make sure to distinguish between bashing other posters, which is unproductive (and violates this site's TOS) and bashing arguments, which is productive and advances the conversation.