Fannie Mae Is Rebuilding Capital To Exit The Conservatorship -
Halfway There
Aug. 18, 2022 1:08 PM ET - Alec Mazo
..... Summary .....
Fannie Mae (FNMAS) (FNMA) builds capital to exit the conservatorship. Inertia works for the company as the balance sheet ramps up. Needs $113b, retained $57b. Let's fill the gap.
The Govt. owns 80% of equity via warrants and can exercise them to earn $72b on Fannie Mae alone and $100b+ total on Fannie Mae & Freddie Mac (FMCC) (FMCKJ).
$100 Billion affordable housing fund is achievable for this Administration if they monetize the Govt stake in the GSEs. If they don't, the next President will monetize the warrants.
The Govt has 3 options to make money, all of which are good for jr preferred shareholders (FNMAS) 1 - CBO model, 2 - warrant exercise model, and 3 - retained earnings model.
Two models are good for common shareholders: Warrant exercise in 2023, and retained earnings in 2027.
Background
Fannie Mae Is Rebuilding Capital To Exit The Conservatorship - Halfway There
Aug. 18, 2022 1:08 PM ETFederal National Mortgage Association (FNMA), FNMAS, FMCC, FMCKJ
Alec Mazo
186 Followers
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SummaryFannie Mae (FNMAS) (FNMA) builds capital to exit the conservatorship. Inertia works for the company as the balance sheet ramps up. Needs $113b, retained $57b. Let's fill the gap.The Govt. owns 80% of equity via warrants and can exercise them to earn $72b on Fannie Mae alone and $100b+ total on Fannie Mae & Freddie Mac (FMCC) (FMCKJ).$100 Billion affordable housing fund is achievable for this Administration if they monetize the Govt stake in the GSEs. If they don't, the next President will monetize the warrants.The Govt has 3 options to make money, all of which are good for jr preferred shareholders (FNMAS) 1 - CBO model, 2 - warrant exercise model, and 3 - retained earnings model.Two models are good for common shareholders: Warrant exercise in 2023, and retained earnings in 2027.
Background
Fannie Mae junior preferred (OTCQB:FNMAS) are worth multiples of the current market price in my opinion, building momentum toward an IPO and an exit from the conservatorship.
Fannie Mae (OTCQB:FNMA) and Freddie Mac (OTCQB:FMCC) have been in Government conservatorship for the past 14 years. The companies are building capital by retaining earnings that were previously swept into Treasury under the infamous Net Worth Sweep. When the White House learned in 2012 that the valuation allowance contra asset account was going to be reversed and the Deferred Tax Assets would be written back up, the housing adviser's team initiated the sweep in late 2012, bringing in $191 Billion in the next 6 quarters, $112B from Fannie, $79B from Freddie ((Quarterly draws table)). Overall, the Government reaped over $300 Billion in profits after injecting $191 Billion into the companies. This is by far the most profitable conservatorship in history and the Gov’t isn’t done yet. It can monetize its warrants representing 79.9% of the company's equity to generate another $100 Billion in the next 12-24 month period.
To write down the Deferred Tax Assets, the Gov’t had to assume the 2008 crisis level home prices were not going to recover for the foreseeable future. That assumption was wrong, and by 2012, the reversal of the write-down was inevitable. However, the same asset write-downs that forced the companies into conservatorship were not credited back to the GSEs’ balance sheets when home prices started to recover. Those assets went to the Treasury instead, and the companies ended up being severely undercapitalized under the perpetual net worth sweep. Every quarter, the companies were making billions and were promptly sending the check to the Government. They were in winddown mode, to be replaced with some kind of system deemed favorable by the Administration and special interest groups.
Junior Preferred Shareholders, with contractual rights to dividends and par value liquidation preference per share, were kicked to the side. Shareholders sued the Government and its implementation of the Net Worth Sweep and the lawsuits are still winding through the legal path, with a potential trial on contractual fair dealings set for October in Judge Lamberth’s court.
Fannie Mae Is Rebuilding Capital To Exit The Conservatorship - Halfway There
Aug. 18, 2022 1:08 PM ETFederal National Mortgage Association (FNMA), FNMAS, FMCC, FMCKJ
Alec Mazo
186 Followers
Follow
SummaryFannie Mae (FNMAS) (FNMA) builds capital to exit the conservatorship. Inertia works for the company as the balance sheet ramps up. Needs $113b, retained $57b. Let's fill the gap.The Govt. owns 80% of equity via warrants and can exercise them to earn $72b on Fannie Mae alone and $100b+ total on Fannie Mae & Freddie Mac (FMCC) (FMCKJ).$100 Billion affordable housing fund is achievable for this Administration if they monetize the Govt stake in the GSEs. If they don't, the next President will monetize the warrants.The Govt has 3 options to make money, all of which are good for jr preferred shareholders (FNMAS) 1 - CBO model, 2 - warrant exercise model, and 3 - retained earnings model.Two models are good for common shareholders: Warrant exercise in 2023, and retained earnings in 2027.
Background
Mark Wilson
Fannie Mae junior preferred (OTCQB:FNMAS) are worth multiples of the current market price in my opinion, building momentum toward an IPO and an exit from the conservatorship.
Fannie Mae (OTCQB:FNMA) and Freddie Mac (OTCQB:FMCC) have been in Government conservatorship for the past 14 years. The companies are building capital by retaining earnings that were previously swept into Treasury under the infamous Net Worth Sweep. When the White House learned in 2012 that the valuation allowance contra asset account was going to be reversed and the Deferred Tax Assets would be written back up, the housing adviser's team initiated the sweep in late 2012, bringing in $191 Billion in the next 6 quarters, $112B from Fannie, $79B from Freddie ((Quarterly draws table)). Overall, the Government reaped over $300 Billion in profits after injecting $191 Billion into the companies. This is by far the most profitable conservatorship in history and the Gov’t isn’t done yet. It can monetize its warrants representing 79.9% of the company's equity to generate another $100 Billion in the next 12-24 month period.
To write down the Deferred Tax Assets, the Gov’t had to assume the 2008 crisis level home prices were not going to recover for the foreseeable future. That assumption was wrong, and by 2012, the reversal of the write-down was inevitable. However, the same asset write-downs that forced the companies into conservatorship were not credited back to the GSEs’ balance sheets when home prices started to recover. Those assets went to the Treasury instead, and the companies ended up being severely undercapitalized under the perpetual net worth sweep. Every quarter, the companies were making billions and were promptly sending the check to the Government. They were in winddown mode, to be replaced with some kind of system deemed favorable by the Administration and special interest groups.
Junior Preferred Shareholders, with contractual rights to dividends and par value liquidation preference per share, were kicked to the side. Shareholders sued the Government and its implementation of the Net Worth Sweep and the lawsuits are still winding through the legal path, with a potential trial on contractual fair dealings set for October in Judge Lamberth’s court.
Senior Judge Lamberth Calendar
FHFA
What Changed?
The Trump Administration’s plan for the GSEs was vastly different from the previous Administration. The companies were going to be recapitalized and released to the private shareholders. Director Mark Calabria was confirmed in the Spring of 2019 and the White House urged the Treasury to come up with a recapitalization plan to return the companies to the public markets. Bloomberg Intelligence’s Ben Elliot produced outstanding updates along the way. It's a nice memento to read through and see where the recapitalization process was moving.
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