Replies to post #484293 on Fannie Mae-No Politics (FNMA)

[Cubshawk]

YanksGhost ---

What's the difference in "market spook factor" between 2 companies with $5 T in loan assets being in receiver ship vs. sitting with only $6 B in capital? I can tell you... NOT VERY MUCH.

The rumor this weekend was that Calabria would be chosen to head FHFA, would strike a deal to settle with JPS shareholders and await a recession where the GSEs could be wound down over a 5 year period and zero out common shareholders because they dared resist the "generosity" of the Moelis Plan.

A wind own plan that transferred the MBS process to other major financial houses with proper capitalization levels in place, especially if spread among a number of them, would be greeted with great enthusiasm both in markets and on Capital Hill where the risk to taxpayers of having to fund another bailout would become largely non-problematic.

Totally untrue. As they currently sit, not only do they have the $6 billion in capital - but they have $200 billion in government backing in case of cash shortfalls. Plus, their loan portfolios/MBS/etc also have the implicit government guarantee. And thus, they are currently solvent and in a sound financially position (because of the government backing). But that is only as they currently sit - and they can't sit in conservatorship forever. Transitioning from conservatorship is where the risk is - whatever the plan forward.

The act of taking assets into and through receivership is designed to extinguish all debt in excess of current assets - and to close out any ongoing obligations. In other words - the US could walk away from any obligation to back the mortgage-backed securities that are currently in the market/held by investors. It would effectively sever any tie to the outstanding debt/obligation that investors could argue currently exist as they could only be paid from current company assets - no government checks would be written in the scenario of a receivership.

If you don't think institutional investors would view this as a potential risk (and act accordingly) then I don't know what to tell you.

And all the assurances in the world from this administration can't guarantee that the process of receivership would be a smooth transition. They can't control Congress acting to halt the process - as a unified Congress could override the President.

But the real threat would be the threat of injunction that could cause the process to be halted pending court review. Receivership most certainly would spark more litigation - thereby increasing the odds of court intervention - and possibly delaying the process for years. In this injunction the companies couldn't function properly nor could they back any new mortgage-backed securities, etc. It would effectively freeze liquidity in the housing market.

It makes absolutely no sense to subject the companies to receivership given the small amount of equity the shareholders actually hold. As I've already stated - it makes much more sense for the government to align with current shareholders to work toward increasing share value given the government is a shareholder itself.