The HF proposal is a good plan.
I would not be surprised to see that it falls within the main Republican aspirations and strangely, to many of the Democratic ones too. But some are more winners than others. If I understood the outline correctly, current common may not benefit as much. It will continue to exist as a 20.1% of the "old scheme" together with Treasuries 79.9%. Jrs., instead, will become the new common stock for the Newco. Jrs. in turn, will also have restrictions. Again, if I understood the plan correctly, there won't be any kind of distributions for the first 5 years and no possible exit. Not sure how to take this last part but it could also be that the new common shares may not trade for 5 years. Thus, the capital infusion is semi-permanent.
These are all good ideas, in my view. They add solidity to the proposal and erase any doubt as to a quick payout for the Jr. holders. It also appears that the plan has been conceived taking into account the whole universe of Jrs., so no distinctions between *theirs* and *ours*.
The rights offering will be done to benefit the Jrs. I imagine that additional common shares of the Newco will be offered to already owners of the Newco (all of us) at a slight discount. This is where the expectation of additional 17+ billion comes from. I can see 100% of all HF with Jrs. position opening the wallets to buy more new common at a discount. If any of us can't or do not want to convert rights into new shares, the rights could be sold in the open market (I am going through right now with STXS, company who have just issued rights that trade in the marketplace under the symbol STXSR). The rights offering inherently speaks of long term investments so it also adds validity to this proposal.
In the end, the old Fannie and Freddie disappear under the plan. And the Newco will compete with any entrants with or without government guarantees.
What is fascinating about this plan is that Hedges want to pay Treasury for all what is owed. If I understood correctly, that is the full 187 billion. And it also honors the 79.9% stake in the old scheme. And until Treasury is paid in full, the 10% dividend applies. So Treasury rakes in: 10% dividends, additional 187 bill and whatever they can obtain from their 79.9% stake from the run-off business + all profits from the legacy portfolio which now has a majority of great holdings (mortgages bought that were written after 08').
I still have to find something that both Republicans and Democrats may not like about it as it does not interfere with the 30Y mortgage and social programs (FHA, Ginnie and other agencies can pick up that) neither with the securitization platform which remains under government control.
Please comment as I have only read it superficially.
