Replies to post #276637 on Fannie Mae-No Politics (FNMA)

[Dallas66]

This may be what you are looking for

http://www.fhfa.gov/Conservatorship/Documents/Senior-Preferred-Stock-Agree/2012-8-17_SPSPA_FannieMae_Amendment3_508.pdf

[rocco2]

Analysis of the 2012 Amendments to the
Senior Preferred Stock Purchase Agreements
WHITE PAPER: WPR-2013-002
EVALUATION REPORT:

http://www.fhfaoig.gov/Content/Files/WPR-2013-002_2.pdf

Conclusion:

Treasury’s announcement of the 2012 Amendments said
that the changes would “make sure that every dollar of
earnings” the Enterprises generate would be “used to
benefit taxpayers,” “support the continued flow of
mortgage credit,” and “help expedite the[ir] wind down.”
Ending the circularity of draws from Treasury to pay
dividends will prevent the erosion of Treasury’s
commitment level, and may help reassure investors in the
Enterprises’ bonds and mortgage-backed securities
(MBS). The change in the dividend structure also will
affect quarterly payments to Treasury, potentially
resulting in the Enterprises returning more money to
federal taxpayers sooner. Indeed, because of accounting
treatment, sustained profitability of the Enterprises could
result in a one-time large dividend payment from each
Enterprise to Treasury. However, the significance of the
impact of the change in the dividend structure depends
on a variety of factors, including the magnitude of
fluctuations in the Enterprises’ net worth.

Increasing the rate at which the Enterprises shrink their
retained mortgage portfolios may pose challenges as their
remaining investments are less liquid. At the same time,
this will reduce risk. However, although the 2012
Amendments more quickly reduce the Enterprises’
investments, they do not directly affect their
securitization business. As such, they do not diminish the
Enterprises’ importance in the housing finance system.
Additionally, the changes to the PSPAs help to safeguard
policymakers’ options to reform the role of the
Enterprises in the nation’s secondary mortgage market.

$$ FNMA $$

[rocco2]

B. The Enterprises May Pay More to Treasury than Under the Previous 10% Dividend
Effective in 2013, the Enterprises will pay dividends as long as they have positive net worth (exceeding the buffer). Whether the new dividend structure results in larger or smaller payments to Treasury than the previous 10% dividend depends on the level of the Enterprises’ net worth and the size of the remaining buffer.
For example, Freddie Mac’s dividend obligation to Treasury in March 2013—based on its 2012 year-end net worth of $8.8 billion—will be $5.8 billion. (Because this is the first dividend under the sweep it reflects the accumulation of positive net worth from prior quarters, and the full impact of the $3 billion buffer.) Under the 10% dividend, the dividend would have been $1.8 billion for the quarter.

Absent the buffer, the net payment to Treasury would be greater if positive net worth is above what the 10% dividend would have been; otherwise the net payment would be the same.18 Recent experience indicates that quarterly positive net worth greater than the dividend under the old system is possible. In fact, Fannie Mae and Freddie Mac were able to pay to Treasury their dividends for the second and third quarters of 2012 (and Freddie Mac was able to pay its dividend for the fourth quarter of 2012) without any draws under the PSPAs. As a result, over the long run, the new system could result in larger net payments to Treasury.
Additionally, as discussed below, accounting treatment related to deferred tax assets might result in substantial one-time dividend payments from each Enterprise to Treasury under the new system. Furthermore, as also discussed below, infrastructure, operating expenses, and other costs within the Enterprises’ discretion may affect the generation of positive net worth.

C. Quarterly Net Worth of the Enterprises Will Be Gradually Reduced to Zero
The 2012 Amendments make it impossible for the Enterprises to build up any capital because their net worths, except for the temporary buffer amount, will be zero after they make each quarterly dividend payment to Treasury. Treasury’s press release announcing the amendments stated that with this change, the Enterprises “will not be allowed to retain profits, rebuild capital, and return to the market in their prior form.”

$$ FNMA $$