Fannie Mae Preferred S (FNMAS)

[Joe Stocks]

Just think why the government didn't use a simple -albeit large- loan line. That is what was needed at the time.

According to banking law, if Fannie or Freddie slipped into insolvency (Assets less than liabilities)and could not raise additional equity capital, they were required to go into receivership (no chapter 11 required). Receivership requires liquidation. The gov could not just make a large loan as that would have put them into insolvency even more. Keep in mind, to date the gov has not loaned FnF anything. They have provided Fnf with capital in exchange for equity. Senior preferred stock is a form of equity.

That is why the governmant was able and wanted to put them into conservatorship vs receivership. Through the senior preferred agreement FnF remained solvent. Of course we all know that helped the housing market from not collapsing, but all in all the government did save FnF.