Replies to post #604906 on Fannie Mae-No Politics (FNMA)

[kthomp19]

My apologies if I was not specific enough in the hopefully constructive criticism.

You obviously have a great understanding regarding HERA and the outstanding litigation which you have inteligently shared reasonable perspectives on. Thank you for that.

Thank you for the kind words. I appreciate your insights and willingness to continue this conversation in a civil manner, even through our disagreements. I continue to learn through discussions like these, and I intend that as a compliment.

Regarding the criticism part - it seems you are reading a lot into Director Calabria's statements regarding timing and how the common shareholder economic interest may ultimately be determined.

Yes. I consider HERA, Calabria's statements, and Mnuchin's statements to be the three most valuable sources of information. Mnuchin doesn't say much directly about FnF, so the former two are my main sources.

I just don't see a way to fit HERA and Calabria's words together in any way other than that there will be heavy dilution to the commons, and after doing the math I don't see how it won't result in so much dilution that the prefs offer a similar return on the upside while avoiding the downside.

Contrary to popular belief, this is not because I have some inherent bias towards the juniors. Instead it is the opposite: I reached my conclusion (that the prefs will not underperform the commons) and then decided on an all-pref allocation. I was around 50% prefs/50% commons when I first bought my shares in 2016, but the more research I did, the harder it was to make a case for owning the commons instead of just buying more prefs.

It has seemed to me that many people have many different interpretations of his statements and he has changed his statements over time - especially on the timing of the ultimate resolution.

Calabria's inconsistency about timelines has been maddening, but I have found his comments about raising equity, and the dilutive effect thereof, to be pretty consistent.

Otherwise - it seems you are assuming their is no pragmatic value in treating common shareholders fairly or more than fairly just to have a successful and expedient capital raise.

Yes, that accurately describes my views. Expedience is exactly what FHFA appears to be after, at least to the extent of taking irreversible steps (like finally getting rid of the seniors and thus the NWS) that couldn't be undone by a new administration.

I certainly think that FHFA has no interest in treating any shareholder "fairly", both because that word means different things to different people and FHFA lacks a fiduciary duty to shareholders.

That's another reason I choose to own the prefs: if FHFA is either agnostic or hostile to the value of existing shares, it is much, much harder to hurt the juniors than the commons, and anything that causes the juniors to be impaired means the commons get destroyed anyway.

Finally - it seems that you are not considering the possibility even if it is lower probability of a common shareholder friendly judicial outcome. If there is a outsized settlement or judgement it would most impact the economic interest of existing common shareholders

In my opinion the court cases are far more important to the juniors than the commons. A win in any case, i.e. getting the NWS finally stopped for good, significantly enhances the value of the juniors. The commons' value, though, depends highly on the amount of dilution, and that is going to be heavy even if the plaintiffs win their cases. Calabria's capital rule is the big thing to watch for here.

I hope you feel that is the courtesy you definitely deserve.

Thank you again for providing specific and constructive criticism. That is in sharp contrast to what I am used to dealing with.