Replies to post #628325 on Fannie Mae-No Politics (FNMA)

[Guido2]

Also, according to Hank Paulson, warrants and SPS were issued to PROTECT TAXPAYERS. Taxpayers have been overpaid. Time to cancel both.

[JosephS]

What did you find that said they are not perpetual obligations?

I have found that they are perpetual and can only be cxld thru negotiations between FHFA and Treasury.



Not a cogent statement.

Not a recco

[Robert from yahoo bd]

All US Treasury had to do originally was make a loan to them (tbtf got 5%, for some reason they doubled that to 10% for the GSEs'), and even that usury rate would have been able to be repaid PLUS the unpaid principal balance.

But for reasons buried in the 11,000 documents, WE know what happened next, the Net Worth Swipe!

I know most investors who have been slapped around like a ping pong ball by Uncle Sug, want a quick resolution, personally I want to know for sure, as an American, whether or not, POTUS implemented the Net Worth Swipe, encouraged the conservator to utilize unrealistic, onerous accounting assumptions, ALL IN AN EFFORT TO PROVIDE NONAPPROPRIATED FUNDING FOR HIS PET PROJECTS!

I bet, David Thompson knows for sure, but can't talk about it because he's an attorney involved in litigating the matter.

In the meantime, at least MC is acting more like a "conservator", then all of his predecessors, AND at least on paper they are building capital through retained earnings.

[kthomp19]

couldn't find anything in the SPSPA stating draws were not repayable

Here is a link to Treasury's Senior Preferred Stock Certificate for Fannie Mae.

Read sections 3 and 4 on pages 4 and 5 and you will see that there are three situations in which Fannie (Freddie's document is in essence identical) can pay down the senior pref balance:

1) After Treasury's funding commitment ends
2) Before Treasury's funding commitment ends, but only to pay down increases in the seniors' liquidation preference due to partial or missed dividends or commitment fees
3) By issuing new stock; the proceeds of those must go to paying down the seniors

#1 is not applicable because the funding commitment has been in place since 2008.
#2 is not applicable because FnF have never made a partial dividend payment, and have never made a commitment fee payment at all (because they have never been required to; Treasury waived them all).
#3 is not applicable at the moment because FnF have not tried to issue any stock.

So the draws are repayable, but only under specific and narrow circumstances. #3 makes a capital raise infeasible because the first $193B of all proceeds FnF get from a stock sale would go straight to Treasury and wouldn't count towards capital at all.

Not to mention that the seniors' $193B liquidation preference and 10% cash dividend rate (once the NWS is ended) renders all new shares worthless anyway. No capital can be raised while the seniors exist in their current form. FHFA and Treasury will have to address this when they negotiate the SPSPA amendment.

This repayment language also underscores another important fact: a court cannot order the seniors to be extinguished because FnF never had the ability to pay them down with extra cash. In order to conform to the terms of the original SPSPAs, which no lawsuit seeks to have changed in any way, a court-ordered remedy to unwind the NWS would have to involve Treasury sending FnF $125B and them keeping the seniors.

That would leave FnF $194B short of Calabria's core capital standard and a stock sale would still be impossible because the new shares would have no economic value.