Replies to post #151975 on Fannie Mae-No Politics (FNMA)

[obiterdictum]

Berkowitz seems to suggest the run-off of the GSEs could be as good for commons as a simple release from cship might be. With one set of preferred removed from a position ahead of commons in the line of reimbursements, I wonder if it might really be a highly profitable run-off for commons. But there's inherent risk that any run-off will be conducted fairly. If anyone here has roughly estimated what might be left for commons (per share) after running off FNMA, please share (I know it's hard to estimate with so many variables and projecting 5 yrs into the future). But If it's in the $10 pps range or so, it could encourage a lot of common holders to hold throughout the volatile days that are likely ahead as the proposal's adoption is debated and as the run-off period potentially gets underway.

It seems unlikely that there will be much debate.

The deal cannot be executed because of HERA, the limiting conservatorship, the current APA and 5th amendment litigation, total lack of Congressional input, his creation of the new, streamlined Tom and Jane with enormous capital and operating assets that will out compete all other existing competitors creating a duopoly and no mention of helping with or preserving the 30 year fixed mortgage. He leaves the Congress out it and tries to strike a deal with the FHFA and the US Treasury. That is a no no.

These items and more may strongly prevent forward movement on this proposal. It may be DOA.

Berkowitz knows that he cannot make this move without sanction from the FHFA and US Treasury.

Berkowitz recognizes this legal fact and for that reason Berkowitz sent a letter to Edward DeMarco and Jacob Lew

In his letter to DeMarco with Jacob Lew cc'd. he states:

It can be implemented consensually by your agency, as Conservator, and the existing investors of Fannie and Freddie (including the U.S. Treasury) with or without legislative action.

In the Discussion Terms Sheet he declares:

The purchase would be implemented by consensual agreement between the FHFA (as Conservator), the U.S. Treasury, the New Owners and other applicable stakeholders, and would include settlement of pending litigation. No legislative action would be required. The NewCos would consider utilizing the business reorganization provisions contained in Title 11 of the United States Code or another court process to implement the agreement and provide judicial oversight and due process to any concerned stakeholders.

To calculate the return per share ina run-off, we need a professional accountant familiar with mortgage finance and the run-off of legacy assets and liabilities to determine and report what the expected revenues, expenses, net profits, stockholder's equity, dividends and distributions the GSEs will have each year over the next five years till conclusion. Then we need a liquidation and distribution plan for net cash assets to shareholders.

Of course, litigation must be concluded favorably, the third amendment must be vacated, the conservatorship ended and the senior preferred liquidation preference of 187.4 billion cleared with what has been and will be paid in so that dividends, distributions and equity can be distributed to the common shareholders.

Source: Fairholme Proposal Documents - Letters, Proposal, Questions and Answers, Discussion Terms Sheet - http://bit.ly/17vLeIg

[Steel Penny]

Sogo, between Obiter and yourself, great clearing up of what might be looked at. It seems to me that this would almost make what would remain of FNF look and act like either a Royalty Trust or a Closed End Fund. I'm not sure which would be the best example or the best for commons - maybe the commons would get the shaft either way, because as the legacy assets decreased the payout would reduce.

Anyone have any thoughts.

GLTA
Jim