Replies to post #743438 on Fannie Mae-No Politics (FNMA)

[kthomp19]

It is not "give up". UST simply cannot do anything with the senior Prefs, given the $400B (my estimate) NWS overpayments.

Sure they can. Who is going to stop them?

You also don't need estimates. Treasury has received $110B more from FnF than it sent to them. FHFA's Table 1 and FHFA's Table 2 provide the proof.

Lawsuit threats over a senior-to-common conversion are an absolute joke, by the way. Treasury stands to lose about $2B at most over those lawsuits.

- AIG is different. Fannie and Freddie had actually overpaid the SPSPA already.

Irrelevant. Treasury owns the seniors, with their roughly $272B of liquidation preference and dividend rights to all of FnF's net worth beyond full capitalization, free and clear. Writing them off for no return consideration would be stupid, and possibly illegal, regardless of what Treasury has received in the past.

- the Capital Requirement is arbitrary and substantially over-stated. It will change.

It is not arbitrary at all. HERA requires a minimum capital requirement of 2.5% of balance sheet assets in 12 USC 4612(a)(1). The current capital rule that Sandra Thompson set out has that requirement, with a small exception for it being "adjusted total assets" which are a few percentage points higher than balance sheet assets.

There is almost no room under the law for Thompson's capital rule to go any lower than it already is.

FHFA is to oversee Fannie and Freddie in conservatorship, and is not in a position to impose a Capital Requirement as if it is some official business regulators.

Wrong. FHFA absolutely does have the authority to set capital standards.

12 USC 4611(a)(1):

(a) In general
(1) Enterprises

The Director shall, by regulation, establish risk-based capital requirements for the enterprises to ensure that the enterprises operate in a safe and sound manner, maintaining sufficient capital and reserves to support the risks that arise in the operations and management of the enterprises.

12 USC 4612(c):

(c) Establishment of revised minimum capital levels

Notwithstanding subsections (a) and (b) and notwithstanding the capital classifications of the regulated entities, the Director may, by regulations issued under section 4526 of this title, establish a minimum capital level for the enterprises, for the Federal Home Loan Banks, or for both the enterprises and the banks, that is higher than the level specified in subsection (a) for the enterprises or the level specified in subsection (b) for the Federal Home Loan Banks, to the extent needed to ensure that the regulated entities operate in a safe and sound manner.

I would highly recommend reading those sections of HERA in their entirety, along with 4513 and 4617, to develop a more informed opinion of what FHFA can and cannot do.

I think they have over reached. This may be challenged.

See my first signature line.