Fannie Mae-No Politics (FNMA)

[kthomp19]

If that contract clause is forced to be stricken because it's a breach of good faith and fair dealing, then there is nothing left to defend.

This is exactly the flaw in your logic. The jury's verdict only results in cash being paid from FnF to shareholders. Nothing else. No striking of clauses, not a single alteration to a single letter of any agreements (including the NWS) either retrospectively or prospectively, nothing.

The relevant question is - what is the probability that FHFA and Treasury will pretend nothing has changed and continue to enforce the NWS currently in LP form, and eventually in cash dividend form when the dividends resume?

Personally, I put a probability of at most 0.1% on this scenario, and any probability that small just rounds to zero to avoid edge case variance dominating the model. Under the current agreements FnF have to hit full with-buffers capitalization before the cash NWS restarts and that point is over a decade away.



You never did answer my question: What is your estimate of the probability that Treasury will change its mind as to its opinion of the illegality of writing off the seniors? All you have said on this front is that it's non-zero, but the difference between, say, 5% and 95% is massive. And trying to weasel out with "I don't know" only means that you really shouldn't own any FnF shares at all right now due to the lack of rational basis on which to do so.