Replies to post #751619 on Fannie Mae-No Politics (FNMA)

[FOFreddie]

Thanks Familymang

I am not sure if Calabria is saying that it is illegal to write down the SPS. The CBO GSE Paper envisions several scenarios and handles the requirements for a writedown in Footnote No. 30:

Section 902.2 of title 31 of the Code of Federal Regulations sets forth standards for the “compromise of debts” by the Administration. On the basis of its review of those standards, CBO believes that a reduction in the value of the Treasury’s preferred shares could be undertaken as part of the recapitalization of the GSEs.

https://www.cbo.gov/publication/56511

The GSE paper states that "The CBO believes that a reduction in value of the Treasury's SPS could be undertaken in compliance with Section 902.2." It doesnt seem that there is a legal requirement but rather the requirement that a compromise of debts follows regulatory requirements which of course is subject to the vagaries of an administrative process.

[Donotunderstand]

and how would JPS do any better than common

they convert at say $25 and then get cut by 10 or by 50 or ?

Equity will be together in one boat suing if the SP is converted to common AFTER the JPS is converted to common

no difference if this is their approach

[jrydaf]

You imply the redemption value of the seniors is based on their LP. However the CBO report uses face value $190B in their calculation, which remains unchanged between 2023 and 2025. Does Calabria’s book specify which one they were assuming for redemption?

If senior redemption is based on LP then Treasury’s percent of the conversion will keep growing while JPs will shrink. That seems be a disincentive for Treasury to release quickly.