Fannie Mae-No Politics (FNMA)

[kthomp19]

If Fannie and Freddie were to exit conservatorship - thus removing FHFA as conservator - that action alone - could constitute restructuring.

No. The reason FnF can't leave conservatorship yet is because their regulatory capital levels are hugely negative.

For example, Fannie's core capital as of March 31 2023 was negative $57B. See page 49 of their Q1 2023 10-Q form for proof. Their shortfall from the base core capital requirement is $171B.

The reason this capital level is so low is that the senior preferred stock, of which Fannie carries $121B on its balance sheet, does not count towards any type of regulatory capital. Those shares MUST either be written off or converted to a different form of equity that does count towards regulatory capital for FnF to ever exit conservatorship in the next 17 years.

Converting the seniors to non-cumulative preferred shares would fix the huge holes in core and Tier 1 capital, but in a conversion scenario converting them to common is the only way to fix the huge hole in CET1 capital (as well as the other two).

You'll find most people stating restructuring ties to the outcome they WANT to happen.

If the seniors are never restructured then neither the commons nor junior prefs will ever have any economic value. We all want a restructuring of the seniors; the difference between common holders and junior pref holders is that the former needs the senior pref restructuring to be a writedown, while the juniors can recover to full stated value in a conversion to common scenario.

The latter is the one that makes more sense for Treasury so I would recommend following the incentives.