Replies to post #758849 on Fannie Mae-No Politics (FNMA)

[kthomp19]

The UST and FHFA's major #1 issue is that they don't have to 'bailout' the GSE'S ever again.

Definitely.

I believe HERA mandates a 2.5% minimum Capital Ratio and MC and SLT have elevated it to 4% or more.

Not quite. FnF have two statutory capital requirements: risk-based and minimum (which the ERCF calls "leverage"). It's the minimum requirement that HERA says must be at least 2.5% of balance sheet assets. The ERCF adds buffers on top of that, but Thompson reduced those to around 0.3% for Fannie and 0.5% for Freddie.

Talk of a capital requirement of 4% is overblown. It's only the base requirements, not the buffers, that matter for release from conservatorship.

But for the Net Worth Sweep, we likely could have been released already.

If the NWS had never happened, Treasury's liquidation preference would still be $187B instead of the $292B it stands at now, but FnF would still owe $18.7B per year in cash to Treasury and their core capital would still be hugely negative.

The only way FnF would have been released by now absent the NWS is if Treasury either cancelled its senior prefs or converted them to common. The same is true right now.

we will likely have to wait for the Capital in a 1st Loss Position to build up to 2.5% or more before the current administration begins to think about release.

There is already $100B of capital (FnF's net worth) standing in front of Treasury's funding commitment. The only reason FnF are so far away from their regulatory capital requirements is the presence of the seniors. Those must be cancelled or converted to common (or some combination) to fix that hole.