Fannie Mae-No Politics (FNMA)

[obiterdictum]

First all of what is being discussed are hypothetical scenarios. We are imagining what would happen if a liquidation was the end game for the GSEs.

Under the proposed House and Senate legislation and in Berkowitz proposal, liquidation does not happen in one moment all at once. So one must imagine a gradual process where the historical investments and guarantees gradually come to a close where principal and interest are no longer paid and the terms of the security or guarantee are met.

During such a process where no new business is being generated by the GSEs and no new business activities are allowed, the GSEs legacy business comes to a gradual end, that is, the legacy revenues can no longer sustain business operations. So, before the final end there will be a liquidation where assets are sold and the proceeds from the sale pay creditors and resolve debt obligations.

After this is done, the remaining proceeds are distributed to shareholders according to a liquidation preference. In the GSEs case, that means that any remaining proceeds left after liquidation will go first to the senior preferred holders, next to the junior preferred and finally to the common shareholders or whatever class of holders remain at that time.

Now each investor must ask themselves what will happen to the GSE stock value and pps if such a wind own occurs gradually over time and what realistic estimate of the amount of proceeds can be made after assets are sold and the proceeds have been paid to creditors and debt obligations resolved? And finally, what portion percentages of the remainder will be allotted to the various types of shareholders?