Replies to post #745106 on Fannie Mae-No Politics (FNMA)

[kthomp19]

What are the specific developments/inhibitions 'preventing' the NWS from 'simply' being turned back on?

Mechanically, nothing. Courts have already ruled that the NWS was a valid act of a conservator (thus 4617(f) prevents judicial review) and that it wasn't a takings (either direct or derivative).

A restart of the cash NWS would fly in the face of Sandra Thompson's stated goal to have FnF build capital, though. It also could revive the prospective relief claim in the Collins case; the Supreme Court only denied prospective relief because the January 2021 letter agreement essentially ended the 2012-2019 era NWS.

At this point, Treasury can realize a lot more money, and much more cleanly, by monetizing its equity stake in FnF. This has the added benefit of not destabilizing the housing market by draining all of FnF's net worth and potentially forcing them into more draws from the funding commitment, especially now that house prices are showing some weakness.

There appears to be a 'sweet spot' for the Biden Admin to grab the cash (80% of $150B, 100% of $50B). It appears the '80% method' in essence protects the JPS (with probably a negotiated haircut), while heavily diluting the Commons. The '100% method' appears to put the Commons in absolute no-man's land, but what IYO would happen to the JPS under this method?

The juniors would be money good if Treasury either cancels the seniors or converts them to common (or some combination of both). In both cases Treasury's stake would be below the juniors' in the capital stack.

It should be obvious which one is preferable for Treasury. And since the NWS was not ruled a takings, any lawsuits against a senior-to-common conversion are no threat at all.