Fannie Mae-No Politics (FNMA)

[obiterdictum]

Waters' Bill: Facts to Consider

1. Waters' bill is the epitome of federal control over the housing finance system. Private companies must apply and then be approved and regulated by the "National Mortgage Finance Administration (NMFA)," the "Office of Federal Home Loan Bank Supervision" within the NMFA and the "Mortgage Insurance Fund." Private companies will have the privilege of attaching themselves to this independent federal agency after approval. Once that 5 percent first loss position is reached, the US Treasury (Taxpayer) pays for every default on every mortgage that is used as collateral in a covered security.

2. The bill plans to eliminate Fannie Mae and Freddie Mac.

3. It plans the ceasing of all new GSE business with the intentional wind down of old business activity, and the sale and liquidation of all assets of Fannie Mae and Freddie Mac over a period of time, 5 years after the bill is passed.

4. This wind down process is in the hands of and run by the US Treasury and FHFA in addition to NMFA.

5. In this process over time, and after all financial debts and obligation are settled, including employees to be paid, and any deferred contributions are paid to the Housing Trust Fund and Capital Magnet Fund, the bill mandates maximization of financial returns to the US Treasury as the Senior Preferred shareholder.

6. The net earnings from winding down the GSEs' business activity and the proceeds from the sale and liquidation of assets remaining after paying off all those items mentioned above, go to the US Treasury as the Senior Preferred shareholder. In addition 10% dividends on the Senior Preferred amounts drawn (189.4 billion) over the entire term of the conservatorship will be paid to the US Treasury.

7. That is, $117.1 billion goes for the Senior Preferred of Fannie Mae with $46.11 billion in 10% dividends since the beginning of the conservatorship till the 1st Quarter 2014. For Freddie Mac, $72.3 billion goes for the Senior Preferred of Freddie Mac with $32.82 billion in accrued dividends at 10% per annum. That is a total of $189.4 billion plus approximately $78.93 billion in 10% dividends to date.

The grand total earmarked for the US Treasury, per Waters' bill, as of March 31, 2014 is $268.33 billion.

Approximately $203 billion will have been paid in by March 31, 2014. That will leave a $65.33 billion shortfall that Waters expects to go to the US Treasury if the GSEs were fully liquidated on March 31, 2014.

Now add the 10% dividend in for 2014 and subsequent years. The amounts would be $2.93 billion per quarter for Fannie ($11.72 billion per annum) and $1.81 billion per quarter for Freddie (7.24 billion per annum).

Now, after carefully considering conservative estimates of Fannie's and Freddie's waning net incomes in the coming years under the Waters' bill, and without the net income sweep in place, the question to ask at is this:

What would the preferred and common shareholders receive after The US Treasury and FHFA

* settle all financial debts and obligation, including employees to be paid, and any deferred contributions to be paid to the Housing Trust Fund and Capital Magnet Fund (i.e. assets - liabilities = stockholder's equity) and

* give the US Treasury the maximum financial return as the Senior Preferred shareholders with a current liquidation preference of $189.4 billion plus approximately $78.93 billion in 10% dividends to date.

What would that number realistically be for preferred and common shareholders?

When that number is determined, then the appropriate label for and location of where this bill should be placed will be clearly apparent.

Sources:
Waters' Discussion Draft Bill
http://democrats.financialservices.house.gov/FinancialSvcsDemMedia/file/003%20Maxine%20Waters%20Legislation/GSE%20Bill/WATERS_046_xml.pdf

Fannie Mae’s and Freddie Mac’s Financial Status: Frequently Asked Questions
http://www.fas.org/sgp/crs/misc/R42760.pdf

Fannie Mae Form 10-Q 3rd Quarter
http://www.fanniemae.com/resources/file/ir/pdf/quarterly-annual-results/2013/q32013.pdf

Fannie Mae Form 10-K 2013
http://www.fanniemae.com/resources/file/ir/pdf/quarterly-annual-results/2013/10k_2013.pdf

Freddie Mac Form 10-Q 3rd Quarter
http://www.freddiemac.com/investors/er/pdf/10q_3q13.pdf

Freddie Mac Form 10-K 2013
http://www.freddiemac.com/investors/er/pdf/10k_022714.pdf