Tuesday, July 04, 2023 9:42:04 PM
Definitely.
Not quite. FnF have two statutory capital requirements: risk-based and minimum (which the ERCF calls "leverage"). It's the minimum requirement that HERA says must be at least 2.5% of balance sheet assets. The ERCF adds buffers on top of that, but Thompson reduced those to around 0.3% for Fannie and 0.5% for Freddie.
Talk of a capital requirement of 4% is overblown. It's only the base requirements, not the buffers, that matter for release from conservatorship.
If the NWS had never happened, Treasury's liquidation preference would still be $187B instead of the $292B it stands at now, but FnF would still owe $18.7B per year in cash to Treasury and their core capital would still be hugely negative.
The only way FnF would have been released by now absent the NWS is if Treasury either cancelled its senior prefs or converted them to common. The same is true right now.
There is already $100B of capital (FnF's net worth) standing in front of Treasury's funding commitment. The only reason FnF are so far away from their regulatory capital requirements is the presence of the seniors. Those must be cancelled or converted to common (or some combination) to fix that hole.
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