Fannie Mae-No Politics (FNMA)

[bradford86]

NEXT 2 DAYS ---- budget reconciliation = exit conservatorship

Jim Lucier at CapitalAlpha Partners advises that there is a placeholder for the House Financial Services Committee to find “savings,” but nothing specific as yet on the assumed value of a GSE release from conservatorship in a budget reconciliation. “That would properly be in the Finance title of the reconciliation tax bill that gets marked up on April 30,” he muses. “We could get a chairman's mark the day before, but I suspect that we won't see a chairman's mark until the day of.”


Members of Congress are not particularly worried about reading legislation before the vote so long as all of the numbers continue to go up. Whether the GSEs exit conservatorship is mostly a matter of indifference. Most MCs could not even explain the meaning of the term GSE. The good news of sorts is that the GSEs will indeed exit conservatorship -- if the Trump Administration uses the cash value to support a budget reconciliation.


The bad news is that the US will end up owning well-more than 95% of the equity upon release, including the crushing dilution of the private investors and also the Treasury’s own preferred position by the accumulating liquidity preference. Sorry hedge fund peeps, full dilution awaits common holders, no forgiveness. And for this reason, we think the Trump Administration will be forced to restructure the GSEs to unlock cash in the shortest period of time.


As we told a room full of very smart people yesterday, our preference for restructuring the GSEs will be for the Treasury to convert its option into common shares, then further issue new common shares to repay the liquidation preference as required by the same federal law that applied to GM, AIG and Citigroup. But unlike these commercial companies, the GSEs will never be truly free of control by the Treasury.

https://www.theinstitutionalriskanalyst.com/post/budget-reconciliation-fiscal-credibility-gse-release