Replies to post #692659 on Fannie Mae-No Politics (FNMA)

[kthomp19]

I recall you mentioning this in a prior post and assumed this would be the fee for the gov guarantee.

Right now, the terms of the January letter agreement say that Treasury gets no dividends until FnF hit full capitalization, and after that the dividend is the lesser of 10% of the senior pref liquidation preference, and any increase in net worth from the prior quarter. At full capitalization this should obviate the need for a commitment fee. The letter agreement also says no commitment fees are due until full capitalization, and in fact none has ever been paid.

I think the "above full capitalization NWS" will prevent FnF from building up too much capital. That will keep returns capped, even for common shares, which is a desirable outcome for an anti-hedge fund administration such as this one.

However, curious if you think this could also serve to function as mechanism by which a fiduciary could gain assurance that the money used for recap wouldn’t be taken so easily.. As in, the government would take some % loss of their stake before the new money would? How else could they provide that assurance to new money without legislation?

The whole purpose of FnF raising and retaining capital is to put private investors in a first-loss position. I highly doubt that the government would willingly take losses before private investors.

Now, Treasury will end up owning a significant common share (i.e. first loss) position once they convert the seniors and/or exercise the warrants. But Treasury will only do that to sell the shares and collect money, not stay at the bottom of the capital structure.