Fannie Mae-No Politics (FNMA)

[LuLeVan]

Tim Howard has only been advocating the exercise of warrants for some time now. He's doing it because he wants to get FnF out of conservatorship. He sees FnF as having an important social and economic function that they cannot perform in conservatorship. In conservatorship the GSEs are not living up to their potential.

The reason he advocates exercising the warrants is that he knows the government needs an incentive to release FnF. Without that incentive, the government (at least the Democrats) would likely keep the GSEs in conservatorship forever. Mike Calhoun had argued similarly in this Jan. 2021 Brookings Institution paper:

https://www.brookings.edu/articles/government-sponsored-enterprises-at-the-crossroads/

So Howard ist putting the public good (well functioning GSEs) ahead of the good of legacy commons who lose 80% by warrants exercise. You can call this "socialism," but you can also call it social responsibility or just Tim Howard's personal "love" for well functioning GSEs.

But even hedge fund managers like Bill Ackman advocate exercising the warrants. In perpetual conservatorship, his commons would remain economically worthless. With warrant exercise (in combination with cancellation of the SPS), he would get about $7 per common share. This would be about three times his average purchase price.