Replies to post #746165 on Fannie Mae-No Politics (FNMA)

[kthomp19]

After 14 years shareholders have been lulled into thinking they can never be wiped out. It's a false sense of security.

I will have to count myself among those ranks then. I don't see a path to wiping out the juniors outside of receivership. They can probably be coerced into taking a substantial haircut just to finally get out from under the mountain of Treasury's liquidation preference, but I don't see a path to absolute zero. The juniors have contracts with Fannie and Freddie and a restructuring that bypasses those contracts would require newcos. That in turn requires the charters to transfer to the newcos, and the only mechanism to do so that I know of that also complies with HERA is receivership.

The government has taken great pains to make sure that the housing finance market remains stable and liquid. Receivership would be an enormous unforced error, especially if it is done solely to bypass the juniors.

That also means I don't see a path to absolute zero for the commons, but nothing in the charters protects them from any set amount of dilution (which can only take them close to zero, not all the way there).