Fannie Mae-No Politics (FNMA)

[kthomp19]

Hadn't the government given an implicit guarantee for the MBS in the many years before the conservatorship began? At that time, the SPS did not even exist.

The implicit guarantee was an assumption made by the market. The government could not have given one, because that would make it explicit.

Right now there is an explicit backstop to Fannie and Freddie the companies, not the MBS, and that backstop depends on the existence of the senior prefs; both the backstop and seniors are integral parts of the SPSPAs.

This backstop is the reason that the MBS market didn't implode while FnF had next to zero net worth in the NWS days, and even now that FnF have built their balance sheet equity to $75B, losing that backstop would cause shockwaves. That's why I think the backstop will need to continue even into a post-exit world, and thus the seniors would need to continue to exist as well.