Wall Street Signals: Mnuchin Senate Committee Hearing Thursday 'Yuge' For GSE Stakeholders

Mnuchin Senate Committee Hearing Thursday 'Yuge' For GSE Stakeholders


Mnuchin has expressed an interest in prioritizing the restructuring of Fannie Mae and Freddie Mac.
The political resolution timeline seems to be picking up the pace whereas the legal resolution timeline continues to drag its feet.
I'm not sure but I hear we still may need a legal ruling to really get out of conservatorship.
Fannie Mae (OTCQB:FNMA) and Freddie Mac (OTCQB:FMCC) are two companies in a conservatorship run by the Federal Housing Finance Agency (FHFA). Under the Obama administration, every nickel of net worth less a small and depleting capital buffer that Fannie and Freddie have made has been transferred to FHFA's sister agency the US Treasury. The net effect is that the two companies are being run as if they are off-balance sheet government agencies that are privately owned. Since the government has placed Fannie and Freddie into conservatorship the fees they charge to insure pools of mortgages (g-fees) have increased to generate additional government revenue.
Investment Thesis: The government regulates Fannie Mae and Freddie Mac regardless of if they are in conservatorship or not. Further, I presume that the lawsuits would need to get resolved somehow. The lawsuits primarily concern events surrounding the imposition of the net worth sweep in 2012. In 2014 a judge ruled that the government could do whatever they want and many other judges have echoed similar opinions. I don't own the common shares and I own the preferred shares. The only investment I have is in GSE preferred shares and I have borrowed over $200,000 in addition to contributing all of my capital. In retrospect, I did a fair job given the circumstances and choices I made across time. If I had known that it would be taking this long, I'd like to think that I would have structured my life so that it wouldn't have felt like I was waiting forever. Because I think that resolving the lawsuits is necessary as part of any recapitalization or outcome, I own preferreds. The government's handling of AIG kept me awake at night worrying when I held commons previously.