Fannie Mae-No Politics (FNMA)

[kthomp19]

What is the current LP of the SPS? Is that total LP reflected on the balance sheet? If I were to look at the 10K or another official financial statement, where would the total LP be listed?

I would recommend reading through Fannie Mae's 2024 Q1 10-Q form and Freddie Mac's 2024 Q1 10-Q form. Search for the term "liquidation preference" to see the answers.

For Fannie the total LP right now is $199.2B (page 49), $120.8B of which is on the balance sheet (page 59).
For Freddie the LP right now is $120.4B (page 2), $72.6B of which is on the balance sheet (page 45).

I thought the LP has never been paid down.

Correct, it hasn't and by the terms of the SPSPAs it cannot be.

Still owe the original 200 billion borrowed.

"Paid down" and "owe" and "borrowed" are the wrong words to use here. The seniors are equity, not debt.

The LP only entitles Treasury to FnF's residual equity (assets minus liabilities) up to the amount of the LP in the event of a liquidation.

So isn’t the total like some astronomical number hundreds of billions and growing every quarter?

Yes. The off balance sheet LP grows by $1 for every $1 FnF retain as earnings. That's roughly $4.2B per quarter for Fannie and $2.6B per quarter for Freddie at current rates.

If it is on the balance sheet why wouldn’t there be a negative net worth? If it is not on the balance sheet, is it a real liability?

The LP that is on the balance sheet showed up there because it was the offsetting accounting entry when FnF were drawing money from Treasury in 2008-2012. Every draw added cash to FnF's balance sheet (assets) and thus needed the same amount to be added to equity (the seniors).

The LP that is off the balance sheet keeps growing per the terms of the December 2017, September 2019, and January 2021 letter agreements. All of those are linked to on this page that FHFA maintains. I highly recommend bookmarking that page and reading every document that it links to.

Why do we need a cram down or even acknowledge it if isn’t on the balance sheet of the GSE’s?

The off balance sheet LP still exists and can't just be ignored. Treasury's valuation of the total LP ($220) exceeds that of the balance sheet portion ($193B), showing that Treasury clearly thinks the off balance sheet portion has value too. Since they must approve any exit from conservatorship, the way in which they remove the LP overhang must be agreeable to them.

The cramdown is a way for Treasury to realize some cash value for that LP. From their perspective it is much better than just writing the LP off, which is part of why I expect the cramdown to happen as opposed to a writedown.

Or has Wise Man been correct all along and it is in a separate account not reflected on the balance sheet?

lol, lmao even

The only advice I can give you regarding Wise Man is to just ignore everything he ever says. Not a lick of it ever truly makes sense once you really dig down, regardless of how much he dresses it up. There is no secret account, dividends ARE allowed during conservatorship if the conservator decides they are in the public interest, etc.