Replies to post #720219 on Fannie Mae-No Politics (FNMA)

[kthomp19]

1) Just the title indicates, Forbes is antagonistic to F&F and to any goals of then president, Donald Trump.

3) Explicitly mentions their treatment should be like everyone else's, by not having special rules.

In #1 you appear to be trying to discredit Forbes on this issue, but in #3 you agree with what they say. These seem inconsistent.

#3 is irrelevant anyway. Treasury exercised its AIG warrants, why wouldn't they do the same with FnF? That and the courts have already ruled that FnF is a special situation.

4) It indicates Treasury needed to bailout the Enterprises. It doesn't mention the accounting treatment Henry Paulson (ex CEO of Goldman Sachs) forced the companies to show artificial losses. We have to remember that just a few weeks before the FHA and auditors said they were adequately capitalized, and then suddenly they had a 180 degree change in opinion, when they realized investment banks could use their capital to dump their toxic instruments, at 100 cent per dollar, only with the help of Government, by declaring them insolvent. In order to do this they needed to change their accounting.

1) It isn't Hank Paulson that ordered the DTA writedown, it was James Lockhart (first FHFA director). And that happened after conservatorship started.
2) FnF were not forced to buy toxic mortgages. That is a myth from a Bloomberg article that had no evidence behind it. Tim Howard investigated and had this to say:

There is absolutely no evidence that Fannie Mae purchased toxic loans post-conservatorship, yet continued references to this myth, including by SCS, perpetuate it, which is not helpful.

5 )Then, it mentions Dividends and device protection Liquidation Preference, where they cannot raise capital w/o paying back LP. This contradicts # 3 above, and the legal meaning of LP.

He's right that FnF can't raise capital until the senior pref liquidation preference goes away, because who would buy any shares while it is in place?

Contradicting #3 doesn't matter because again FnF is its own special case. And the part about repaying the liquidation preference is in the Senior Preferred Stock Certificates, see Sections 3 and 4.

6) Says the companies were struggling, while recognizing that from 2008 to 2018 they paid $300B to Treasury, i.e. $100B more than received. It credited this to the bailouts. It doesn't make any sense.

He's saying that without the bailouts FnF would have never been in a position to more than repay the draws they took from Treasury.

It doesn't matter if you, or anyone outside of FHFA/Treasury/FnF, think that FnF didn't actually need the bailout. Tim Howard (same link) also said "Finally, we can’t definitively say that without the non-cash accounting entries made by FHFA Fannie would have survived the crisis." If he can't find grounds to say that FnF certainly didn't need the bailouts, what are your reasons for saying so?

7) The goal here was to use the Enterprises' capital buffers to rescue investment banks. Now they blame lack of capital as the hurdle to exit conservatorship.

1) The "toxic mortgage purchase" thing is a myth.
2) The second sentence is 100% correct. If FnF were to be released right now, with core capital levels hugely negative (-$69B Fannie, -$41B Freddie), they would basically have to be put right back into conservatorship.

8) On minute 5:35, it indicates the discretionary power to liquidate assets if placed in Receivership, when Critically undercapitalized. . We know that they have been raising their capital now and this will not happen. It would also create havoc in the bond capital market.

FnF are critically undercapitalized right now! See 12 USC 4614(a)(4) and the definition of "critical capital level". That level is $57B for Fannie and $45B for Freddie right now, whereas their actual core capital levels are negative (see above).

I agree with your last sentence. Receivership is technically possible right now but does no good for anyone and would cause a lot of harm.

9) Finally, FHFA Director, Ms. Thompson, is for exiting conservatorship. They did not liquidate them in the worst year ,2008

I agree. She wants to entice outside investors to help recapitalize FnF as evidenced by her recent fireside chat.