Fannie Mae-No Politics (FNMA)

[kthomp19]

But I can say it's more likely that the language in the contracts need to be edited because the NWS has been legally deemed unlawful.

The NWS was not deemed unlawful. It was deemed to have breached the implied covenant of good faith and fair dealing, and the remedy was only cash. The actual NWS remains in force and won't be changed at all as a result of this ruling.

If the contracts need to be restructured, they may also correct the inability to redeem the SPS and some of the prior dividends could apply to reducing the LP.

Again, the verdict was only about the implied covenant. It wasn't about the contracts themselves. In addition, the contracts in question are those between the shareholders and the companies, not the SPSPAs.

Otherwise by the time the capital thresholds are reached the LP will be ridiculously huge.

Right. Treasury will never be able to recover $1 of cash for every $1 of liquidation preference they hold. That's why Calabria had to tell Mark Warner that "it simply was not economically possible for Treasury to recoup the par value of its preferred shares".

Treasury will have to take a haircut on the full liquidation preference at some point. That by itself was causing political problems as evidenced by Warner's concerns.

But Treasury will take a far smaller haircut in a conversion than in a full writedown which is why Calabria said "A conversion would also allow a more accurate reflection of Treasury's claims without the political fallout of outright forgiveness."

Why go through a common conversion process vs just saying - you owe us too much money, you can't even pay 10% on the LP so death spiral 2.0 is here... We're just going to rescind the entire operation. RECEIVERSHIP. Why would they care about saving the JPS and just wipe common?

Receivership is its own can of worms.

Given the fact that conservatorship has lasted so long and the government doesn't seem interested in resolving it soon, I see receivership as highly unlikely. Among many other reasons, it requires FHFA setting up LLREs which cannot exist for more than 5 years by 12 USC 4617(i)(6)(A) and (B) at the very least. Why start that clock unnecessarily?

So my theory is based on FHFA's best interest is to get the SPS LP lowered or zeroed by negotiating with Treasury and restructuring the poorly worded SPS contracts.

None of the liquidation preference can exist (perhaps the original $1B per company) if Treasury is to get any value out of its common shares, whether they are acquired via a senior conversion or warrant exercise. Any lowering of the liquidation preference will either need to be a voluntary writedown by Treasury or a conversion to common due to how the ERCF is structured.