Replies to post #791340 on Fannie Mae-No Politics (FNMA)

[Rodney5]

It has been stated numerous times on this board,

Quote: "You know that the SPS can't be paid back, because it's equity, not debt.” End of Quote…. WRONG

First off, the Senior Preferred Stock is illegal and unconstitutional, and IF THE FHFA / TREASURY are allowed to continue with the illegal contract and the SPSPA agreement is allowed to stand the FHFA Breach of Contract Bad faith and Unfair Dealings actions of the government AND It is bad faith and unfair dealing when the Regulator is authorized to pay down the Senior Preferred Stock and sent the Net Worth without the pay down option. The FHFA Director doesn’t need the Treasury approval to pay down the Senior Preferred Stock the Director has the authority from Congress written in HERA:

HOUSING AND ECONOMIC RECOVERY ACT OF 2008

RESTRICTION ON CAPITAL DISTRIBUTIONS.— page 2731
‘‘(1) IN GENERAL.—A regulated entity shall make no capital distribution if, after making the distribution, the regulated entity would be undercapitalized. The exception.

Quote: “Page 2732

EXCEPTION.—Notwithstanding paragraph (1), the Director may permit a regulated entity, to the extent appropriate or applicable, to repurchase, redeem, retire, or otherwise acquire shares or ownership interests if the repurchase, redemption, retirement, or other acquisition— ‘‘(A) is made in connection with the issuance of additional shares or obligations of the regulated entity in at least an equivalent amount; and ‘‘(B) will reduce the financial obligations of the regulated entity or otherwise improve the financial condition of the entity.’’.

NOTE: REPURCHASE, REDEEM, RETIRE...

WILL REDUCE THE FINANCIAL OBLIGATIONS OF THE REGULATED ENTITY.

Link: https://www.congress.gov/110/plaws/publ289/PLAW-110publ289.pdf

In essence allows the trustees of Fannie and Freddie to go to the market at any time to raise new capital, including new capital with lower dividend coupons, to buy back the Treasury’s senior preferred. Any loyal conservator of Fannie and Freddie would take advantage of this refinancing option to end the bailout arrangement, by paying off the senior preferred in full. The Treasury did not take a Perpetual Equity Investment in the enterprises, the Treasury stated a temporary investment period!

[kthomp19]

Stop conflating a regulation with the law.

Regulations and law go hand in hand. Stop trying to act as if they are two entirely separate things.

The FHFA director, by regulation, can set a minimum capital requirement higher than what is mandated by 12 USC 4612(a). This is exactly what Calabria did when his ERCF made the base minimum capital requirement 2.5% of adjusted total assets rather than balance sheet assets. Thompson has kept this part of the ERCF in place.

The law, namely 12 USC 4614(a)(3)(A)(ii), requires that FHFA classify FnF as "significantly undercapitalized" if they do not meet the minimum capital requirement.

The current capital rule is a regulation. It is purely at the discretion of the Directorto set the risk based level once the APA requirements are satisfied.

This is why I only talked about the minimum capital requirement. The FHFA director has more leeway by HERA to set the risk-based requirement, but the minimum requirement is more restrictive when it comes to FnF's capital classifications outside of conservatorship.

There is nothing stopping the Director from proposing to set a revised risk based level at say 2.6%, have a public hearing and comment period and publish the new rule in the federal register.

A risk-based capital requirement of 2.6% would be based on risk-adjusted assets, which is a far lesser number than balance sheet assets or adjusted total assets. The only thing setting the risk-based capital requirement this low would accomplish would be to make the minimum capital requirement always control because it would always be higher. In order for FnF to be classified as "adequately capitalized" outside of conservatorship, they must meet both the risk-based and minimum requirements.

Obviously it is entirely possible to do what dajester wished for.

Only with respect to the risk-based capital requirement, and since both the risk-based and minimum capital requirements need to be met, it wouldn't help.