Replies to post #536572 on Fannie Mae-No Politics (FNMA)

[kthomp19]

private placement is not being considered in the testimony. DOA

Here we go again...

A private placement is not DOA at the moment. You are confusing something not being mentioned with it not being a possibility.

It is good if FHFA could consider hedging credit risk before considering what capital cushion is required.

Yes, CRTs and other risk-sharing initiatives would allow FnF's risk-based capital standard to be less than it otherwise would be without those things. But the minimum capital standard also applies to FnF by HERA. FnF must meet both the risk-based and minimum capital requirements to be classified as fully capitalized.

Furthermore, minimum capital standards can only be met with core capital, which by law consists only of common stock par value, non-cumulative preferred stock par value (thus excluding the seniors), additional paid-in capital (which is where the proceeds of an SPO would be accounted for), and retained earnings. Since Calabria and Mnuchin have both said that retained earnings alone will not be enough, and since Calabria and Layton both said that FnF's capital needs to be mostly common equity ("the vast majority" in Layton's words), there will have to be a ton of common shares sold to get FnF recapped so they can be released before the end of this presidential term. Dilution is coming, the only question is how much.