Fannie Mae-No Politics (FNMA)

[obiterdictum]

Mike_usa, in the proposal, after Berkowitz et al acquires the operating assets (including the majority of the personnel and restricted capital, the run off companies, Fannie and Freddie, are left with legacy investments and insurance guarantees. These are historical businesses.

From the Discussion Terms Sheet:

C. Acquired Assets
The NewCos would acquire the following from the Enterprises by
means of asset purchase:

*substantially all operating assets, including (a) trademarks
and copyrights, (b) intellectual property rights, (c) systems
and technologies, (d) tangible property rights, (d) business
contracts and relationships, (e) human capital assets, (f)
owned and leased corporate real estate assets, and (g)
goodwill (“Operating Assets”), in each case other than
those associated with the Common Securitization Platform
and other exceptions to be agreed; and
* cash or marketable securities in the amount determined
below (“Restricted Capital”).

Restricted Capital would constitute part of the initial capital of the
NewCos. All Restricted Capital – as well as attributable profits –
would be retained by the NewCos and used in their business
during the five years following the acquisition (the “Restricted
Period”). To enforce this requirement, the NewCos would agree,
during the Restricted Period, not to pay any dividend or make any
distribution attributable to Restricted Capital.

H. Full Employment
Subject to the continuation of the Services Agreement, the
NewCos would offer continuing employment to the substantial
majority of Enterprise employees and be responsible for related
costs going forward (excluding legacy pension, OPEB, or similar
liabilities).

No new business will be taken on, especially any that is similar to or overlaps with the new companies that are proposed to be formed.

J. Non-Competition
Except as agreed, the Run-Off Companies would not write new
mortgage insurance coverage in competition with the defined
business model of the NewCos. The parameters of the agreement
not to compete would be defined narrowly and would not affect
any other Federal agency or program.

The legacy book of business will be gradually and/or strategically run-off until business concludes for lack of revenue to continue to operate.

Run-off defined - http://www.devonshiregroup.com/articles/runoff-new-strategies-for-an-old-business/

Then any remaining legacy assets will be sold and the proceeds will be used to pay off or settle with any remaining creditors, claims, debt obligations, bonds, financing loans, and other liabilities.

Whatever proceeds that remain after this hypothetical liquidation, will be distributed to the various types of shareholders in order of the liquidation preference. The run-off companies, Fannie and Freddie, will then be ended and will cease to exist.

Here is the proposal's Final Step 8:

STEP EIGHT: RUN-OFF

* RUN-OFF COMPANIES LIQUIDATE RETAINED INVESTMENT BOOK AND GUARANTEES IN AN ORDERLY MANNER
* RUN-OFF COMPANIES DO NOT WRITE NEW BUSINESS IN COMPETITION WITH PRIVATE INSURERS
- Limited exceptions for agreed transitional activities
*NEWCOS AVAILABLE TO ASSIST IN PROMPT WIND-DOWN AS NEEDED
- Transition services
- Insurance of retained securities
* U.S. GOVERNMENT PROFITS
* Return of full senior preferred stock investment, plus fair profit
* 79.9% of surplus equity proceeds from orderly wind-down, expected to be significant
* Fair fees for entity-level support and any interim reinsurance
* AT END OF WIND-DOWN, FEDERAL CHARTERS TERMINATED; FANNIE AND FREDDIE CEASE TO EXIST

Below is a link to the original source documents. These will clarify what Berkowitz et al are proposing.

Source: Fairholme Documents - Letters, Proposal, Questions and Answers, Discussion Terms Sheet - http://bit.ly/17vLeIg