Replies to post #749648 on Fannie Mae-No Politics (FNMA)

[LuLeVan]

It's not a "what if" scenario that the seniors must be restructured before FnF can exit conservatorship. It's a fact.

[kthomp19]

First, let's see how the current and future litigation resolves itself before proposing all these "what if" scenarios. We will all be able to make better guesses then, don't you agree?

No, things don't work that way. We all have to make our decisions on what we own right now, in every moment.

Yes we will be able to make better guesses as more information comes in, but acting as if we cannot make any decisions right now because of that means there is no rational basis for owning either the commons or the juniors.

Presupposing various legal outcomes, governmental policy actions, and reactions from the markets that are just currently unknown and their JPS centric outcomes may or may not come to fruition.

That's exactly what investment entails: considering future possibilities and probabilities, and then making a strategic decision based on those. A whole list of "what ifs".

I believe the juniors are underpriced relative to my estimation of future events, including the fact that I don't see a situation where they go to zero (or even near it) outside of receivership. The commons, on the other hand, face a near existential threat in a senior-to-common conversion that has already been publicly contemplated by Treasury (in their 2019 report) and already happened once before (AIG).

I think the commons are still underpriced right now, but when considering the risk of a senior-to-common conversion (three years ago I had it at 10%, now I think it's at least 25%) and the fact that the juniors are so cheap, I have settled on a 100% junior allocation.