Replies to post #778072 on Fannie Mae-No Politics (FNMA)

[LuLeVan]

Do you deny that when the Fed sells its MBS holdings, it drives up interest rates?

Do you deny that when Fannie and Freddie buy MBS, it lowers interest rates?

The Fed doesn't sell its MBS because it wants to drive up mortgage rates. It's just an inevitable side effect of quantitative tightening, which includes selling off all the assets on the Fed's bloated balance sheet. The Fed may actually be happy with FnF buying the MBS, which helps to ensure that mortgage rates do not rise excessively.

Fannie and Freddie will not be able to purchase MBS until the conservatorship is terminated.

The Federal Reserve may or may not green light such an idea, but in theory it could object to it on the basis that a scenario could develop where...

[kthomp19]

Typically our fulcrum security holder's arguments fall in one of 3 themes: (1) instant recap (2) the dilution solution and/or (3) administrative bankruptcy.

1) Do you mean that junior pref holders tend to think FnF will be recapped all at once while common holders think it will happen more gradually? I can see this being a point of contention.
2) I'm not aware of anyone, no matter what shares they hold, that truly thinks there will be no dilution at all. It's all a matter of degree.
3) FnF have been in administrative bankruptcy for 15 years and counting. That isn't an argument, it's a fact.

His idea is that the government is working on this behind the scenes and it will be the catalyst for instant release.

I have never understood this argument. If the President wants FnF to buy MBS, he can direct Sandra Thompson to make them do so. If she refuses, he can fire her and replace her with someone who will. This doesn't require FnF to be released from conservatorship. Quite the opposite: making FnF follow orders is much easier with them in conservatorship as opposed to out of it.

The Federal Reserve may or may not green light such an idea, but in theory it could object to it on the basis that a scenario could develop where the POTUS wants to juice the US Economy by having FHFA direct the GSES to put the pedal to the metal and buy tons of MBS 8-12 months prior to the Elections and potentially interfering with US Monetary Policy.

I agree. If the Fed doesn't want to buy MBS, I don't think they would take kindly to FnF doing so instead. The President could say "too bad" but he might not want to so publicly flout the Fed in an election year.