Fannie Mae-No Politics (FNMA)

[Demar]

Some Fannie Mae & Sallie Mae parallels:

Sallie mae chart: 1994 - 1997

http://stockcharts.com/c-sc/sc?s=SLM&p=W&st=1990-01-01&en=1997-01-03&i=t13628552217&r=1373162741434


Federal Actions That Cut the GSE Benefit and Stock Value:

In 1992 Congress began to take actions that hurt SLMA’s business. Congress set up a pilot for the “direct lending” program where the Department of Education made loans directly to students, avoiding both lenders and SLMA’s secondary market. In 1993 the Clinton Administration made direct lending a priority and the pilot program became permanent. The Clinton Administration saw direct lending as a more efficient use of Federal resources, and set goals to largely eliminate Sallie Mae’s and the private-sector’s involvement in the Federal student loan program.
Also in 1993, Congress imposed on SLMA a special fee, called an offset fee, of 30 basis points on new federally guaranteed student loans that SLMA acquired for its portfolio. This offset fee applied to assets SLMA held rather than to the debt it issued, and did not apply to any other entity. The proceeds from the fee went to the Department of Education. From SLMA’s perspective, the offset fee was a tax that reduced the franchise value of the GSE charter by effectively eliminating part of its funding advantage. The Courts upheld the offset fee but ruled that it did not apply to loans that SLMA securitized. Although the offset fee at first threatened to be very costly to SLMA, its actual financial impact was never greater than 15 basis points overall for on-balance sheet student loans, as it did not apply to loans that were consolidated under the Federal student loan program and private loans. Both of these classes of student loans grew rapidly during the wind down.
Because of the threat of direct lending and the reality of the offset fee, equity market participants began to question the long-term viability of SLMA. SLMA’s stock lost nearly two-thirds of its value during the early 1990s, as investors expressed their concern about the long-term value of the company. An innovation that occurred during this period and facilitated privatization was the development of the student loan asset-backed securities market. SLMA saw the ABS market as a private sector alternative to GSE funding.

The Privatization Act and Proxy Fight:

In 1996, President Clinton signed the SLMA Reorganization (Privatization) Act into law. Under the Act, shareholders were presented with a choice of: (1) a reorganization inwhich their shares in SLMA would convert to shares in a fully private-sector holding company and SLMA would be phased out by 2008, or (2) a liquidation of the company by 2013. A contentious proxy fight followed in which two factions battled for control of the company. However, both sides in the proxy fight were in favor of privatization, so the dispute, which could have been more problematic, did not impede the goal of privatizing the company. Indeed it may have clarified the positions of each faction, encouraged them to make better proposals to shareholders, and may ultimately have given clear support for the new management team.

http://www.treasury.gov/about/organizational-structure/offices/Documents/SallieMaePrivatizationReport.pdf