Fannie Mae-No Politics (FNMA)

[kthomp19]

He mentioned the liquidation preference and stated that it should go away as it is just an accounting entry. Liquidation is not going to happen.

Liquidation preference absolutely has value outside of an actual liquidation. The government currently values its Freddie senior prefs at full liquidation preference, and the Fannie senior prefs at a much smaller discount than in the past. See p. 100 (p. 107 of the pdf) of the FY 2021 Financial Report of the United States Government.

This is not something that one can reasonably expect Treasury to give up with no return consideration.

He did mention that there could still be some sort of exercise of the warrants like the AIG case.

Treasury converted its preferred shares to commons with AIG, diluting the prior owners by 92%, which is more than the 79.9% "cap" some people think Treasury cannot exceed.

Personally, I think the AIG case is not the same. AIG was in trouble, FNF was not.

FnF are in far worse shape right now than AIG was. FnF are hundreds of billions of dollars below their capital requirements; if they were released from conservatorship today they would have to be put right back in due to being "critically undercapitalized" as defined by the law (HERA).