Replies to post #4161 on Fannie Mae Preferred S (FNMAS)

[littledevils90210]

The sweep does not count what was already on the books.....go figure...devil

[Joe Stocks]

Any thoughts on why TSY is allowing them 3B in retained earnings...why not sweep it all?

With FnF passing all profits to the treasury, or more well defined as any sums over $3m bil in net worth, they walk a thin line between solvency and insolvency. Amazing, isn't it? Freddie turns $4.5 bil profit in one quarter and they are $3 bil away from insolvency which would necessitate receivership and liquidation unless that taxpayers put more capital in. In addition, profits could be offset simply buy a negative change in the value of their MBS portfolio. I imagine the $3 bil is a cushion that they feel they can wind down as the MBS portfolio winds down.

[rosen62]

The last ammendment to the PSPA contains a clause by which FF are allowed a maximum net worth of 3 billion the first year the ammendment takes place (2013) with a reduction of 1 billion a year, if I remember correctly.

What is not clear from the ammendment is if the 1 billion change takes place "per year" or in quarterly installments. We will know next quarter when they announce the sweep.

In this pr, they announced 5.8 billion sweep for March. Which is the result of present net worth 8.8 billion minus the max allowed 3 billion = 5.8 billion goes to Tsy. If the next quarter's equation has the max. net worth at 2.75 billion then we know that the discount will be 250 million each quarter for the next 12 quarters.

Remember, by Jan 1 2016 -I think- net worth should be zero. So the GSEs have basically 12 quarters to have net investment at zero and pay back taxpayers to let shareholders push their claim. Even when the companies will still owe the Seniors funding just as they may owe the Jrs. Problem is, if net worth is zero, there is really no company left. Even if profitable. It's all about Tsy's magick wand. Now you see something. Now you don't see it anymore.

My understanding only.

[44centsAKAchoccake]

They don't want them to have negative retained earnings. Granted, they don't want them to be "too" positive either, but they don't want them to be negative.