Replies to post #629320 on Fannie Mae-No Politics (FNMA)

[kthomp19]

So why not have in the consent decree that the capital raise will occur in 3 to 5 years so they can raise capital via retained earnings? MC said it would be event driven not calendar driven.

I mean why does everyone think this has to be done in a day, given the NWS and a "conservator" who was looking out for the best interests of everyone EXCEPT the GSES?

Because the slower the recap, the higher and more prolonged the risks are for taxpayers and the housing finance system. The whole point of having lots of capital at FnF is to minimize those risks. Ergo, the more capital they have sooner, the safer they are.

Watt was of the mindset that FnF's capital didn't matter because of Treasury's backstop. Calabria has a very different mindset. It is crystal clear from the capital rule, his interviews, and his public comments that he wants lots of capital and wants it ASAP.

Example: CNBC interview from April at 7:03:

It has always been my view that an exit from conservatorship is going to require a large capital raise by Fannie and Freddie. I have always believed that that's a 2021, 2022 event.

Example: Bloomberg interview from February at 3:34:

I would love if we could do a big capital raise today but we're just not in that position yet.

In the end, you have things backwards. A fast recap is good for everyone except current common shareholders. Dragging out the recap to use more retained earnings only benefits current common shareholders while exposing taxpayers and the housing finance system to unnecessary risks. Doing so on purpose would be a severe dereliction of duty on Calabria's part.