BOOM. Our negotiator renews the call for amortization into earnings of the $67.8 billion worth of Deferred Income (upfront g-fees already collected) in one fell swoop, currently recorded as Debt. So, useless for the Net Worth (stock valuation) and to meet the capital requirements.
It doesn't affect the resolution of the Separate Account plan according to the law:
-$152.3B cash refund from UST-FHFA.
-$228B posting as Retained Earnings account.
FnF would resume the dividend payments and it's when the JPSs' fair value would fetch their par value.
It benefits the UST in the case of a Takings of our stocks at the BVPS and resale to other players, as it'd get the Deferred Income, net, as a windfall, through a higher resale price. Plus, the corresponding extra tax income that year.
FnF have accumulated so much capital, 15 years into conservatorship, that, in the case of Freddie Mac, it could redeem the JPS in full, still be Adequately Capitalized and even meet 25% of the Prescribed Capital Buffer. But this isn't the case for Fannie Mae. It turns out that the Buffers are met with Tier 1 capital, which is $12B less than the available Core Capital, and thus, the redemption of its JPS would leave it $1B short of the Leverage Capital requirement. This is the moment when the amortization of the Deferred Income into earnings would come to the rescue.
Although the JPS would trade at their par value as pointed out before, with a restated dividend rate, there is a possibility that they could trade below it, just due to the effect of the stock overhang (too many people willing to realize profits). Also, investing jointly with hedge funds isn't the best investment decision: there is risk of stock price manipulation with these illiquid stocks with the excuse of the stock overhang and whatever the gang comes up with again.
Besides, the redemption of the JPS boosts the common stock valuation (adjusted EPS) and thus, the sale price if in the first point I've mentioned that a Takings today would end up in the resale of FnF to bigger players. Another benefit for the UST if that's the case. Otherwise, the existing shareholder captures this benefit.
In the thread cited, is included the prices under this scenario of redemption of JPS, with the adjusted EPS and Privatized Housing Finance System scenario.
The problem with the accounting of the Deferred Income, is that FHFA is mixing up the revenue earned with the concept that FASB (accounting standards council) calls "performing obligations", defined as a promise of future delivery of the product or service.
FHFA might think that "performing" is like FnF that may or may not pay the claim depending on how the loan performs. Also, it's mixed up with the prior Guaranty Income/Obligation accounting, also income that was recorded as debt, but it stopped upon the consolidation on the Balance Sheets of the MBS Trusts in early conservatorship. And I'm wondering whether this consolidation was meant to set aside the "guaranty obligation" accounting, how is it possible to end up with the same accounting standard, now renamed "Deferred Income".
Or, simply, the FHFA has used its Incidental Power as conservator to deprive the Equity holders of the benefits of this upfront g-fee recorded in their Net Worth, by opting out of adopting the new Revenue standard as of 2017, which can't be authorized as it's been done with the Separate Account plan and blessed by the Supreme Court, when Justice Alito read the Incidental Power as the rehabilitation of FnF, the Marxist way (beneficial to the Agency and the public: the extortion of their resources with loan sales when the PMI claim is pardoned, REO inventory sold to neighborhood associations, etc.)
The service that FnF provide (guaranty service) is delivered and the MBS holder benefits from it, on day one. This is why it's Revenue earned and the accounting standard the FHFA is applying, must be changed for this 2014 new Revenue Recognition standard, that came into effect in December 2017.
This violation of its Incidental Power secures the compensation for damages requested for the Equity holders to the DOJ ($4.8 B) that also settles the 8 securities law violations during conservatorship, and it matches the one demanded to the plotters peddling the Government theft story.
