Fannie Mae (FNMA), Freddie Mac (FMCC): New Document Release


 

A new screenshot floating around Twitter today hints at a new release from Judge Sweeney’s court.  (Edit: Confirmed on Pacer The full exhibit is available here The release is 727 pages and this is just 173 pages of exhibits.). The new documents shine some interesting light into the original government plans for Federal National Mortgage Assctn Fnni Me (OTCMKTS:FNMA), and Federal Home Loan Mortgage Corp (OTCMKTS:FMCC). The document shows a transition timeline which had no net worth sweep but a plan to take the companies private. Clearly the government changed their  plan when it went with the Net Worth Sweep in 2012.

Plan was supposed to take Fannie and Freddie Private and Out of Conservatorship

The plan would have converted Treasury Preferred to non-cumulative preferred stock, and passed some sort of drafted legislation in 2013. The companies would have been allowed to start building capital in 2014-2015. 2016 would have been a bigger year with the companies leaving conservatorship and the preferred stock being converted to common stock with a full recovery of net cash investment for the Treasury. The companies would have also conducted an equity rights offering to accelerate the Treasury’s repayment. From 2017 to 2020 the Treasury would have divested the remaining amount of their common stock.

Plan would mean dilution for Common Shares

One element to note in this plan is that it would have diluted common holders as the government would have converted its preferred into common shares by 2016 at a valuation that would ensure full recovery of net cash investment for the Treasury. There is no indication as to what the government planned to do with their warrants.

New Question: Why did Government go a new route?

The government clearly had a plan to free both companies from conservatorship and return them back to private ownership. These documents raise the question as to why they decided to audible to enact the Net Worth Sweep and go a different route when they had a very viable plan to free the companies. The new question is why? What we know for sure is it was not motivated by avoidance of a death spiral as was originally fed to us.

Editor’s Note: This document is a part of this exhibit.

Disclaimer: Author has positions in Fannie Mae Preferred, and Freddie Mac Junior Preferred.

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