jdw230

Agreed

Are you referring to Jan 6th? If so, that's not what I was referring to at all. Anyway, the point I was trying to make doesn't matter anymore - so let's leave it there, not trying to stir any political pot. Just trying to touch upon all components surrounding the GSEs (which I suppose by their very nature of being 'GSEs' can be tricky to do sometimes).

I agree with you - if you take a step back and look at the situation - why would anyone, any entity, any owner ever give up a claim they have today? The answer to me is simple - maximizing their own return. Here's how: The government has 2 options: 1) Convert SPS to common (which means also converting the ever-growing LP), as well as exercising the warrants for 79.9% of the common Under this scenario, the government would end up owning 90%+ of both companies. After which, all common share holders (the overwhelming majority owned by the government) will be severely diluted. Treasury documents show that they show the value is overwhelmingly in the SPS: https://www.fiscal.treasury.gov/reports-statements/financial-report/balance-sheets.html (refer to note 7). I am not sure mechanically, how all of the governments ownership in this scenario ($300B+) could conceivably be sold off to any public investor in the future (note: FnF currently have a combined capital position of $160B). If the Trump Administration is serious about monetizing their stake to reap the benefits during his term, I'm not sure how it would be feasible if SPS is converted into common. 2) Consider the SPS paid (neutralizing the ever-growing LP) and fully exercise the warrants for 79.9% of the common There wouldn't be the overhang of converting SPS into common, government wouldn't dilute their own position in the process- results in more value for the government. While yes, they would own less shares, the value of what they own would exceed that of scenario 1. The government could easily sell this stake off over time and collect dividends on their position until those shares are sold off. Tangentially related - I think a lot of what we've seen in the news has been to drive higher value within FnF - cutting waste, fighting fraud by engaging Palantir and announcements for monetizing the CSS. Also, @TwoCitiesCapital I hear you - we can't predict with certainty what Trump may, or may not, try to do regarding a 3rd term. That being said, what we can look to is the past. After Trump's first term, there were concerns raised that there wouldn't be a peaceful transition of power to the Biden administration. What did we end up observing? A peaceful transition of power. I know we may not agree and that's okay, but if this gets done at all, I'd assume the administration plans to address this during the current term.

I think those are very fair arguments that we need to consider and evaluate as possible pushback. I've thought about those opposing views quite a bit and I keep going back to a few guiding principles in evaluation of those views. Note, some of these principles carry more weight than others and in no particular order: Trump isn't running for a 3rd term: While he wouldn't be up for a 3rd term, in my opinion, he seems like he's historically not afraid to take bold steps that would cause major political potatoes (e.g., tariffs, attacking Iran, Soleimani, etc.) Wide Range of Shareholders Across the Investor Base: Govt holds warrants for 79.9% of both companies. Of the 20.1% not owned by them, an overwhelming majority of that stake is owned by retail (for both FnF) (source: https://www.investing.com/equities/fannie-mae-ownership / https://www.investing.com/equities/freddie-mac-ownership) While yes, Institutional Investors would benefit, the majority of the investor base is Retail. I also firmly believe (as I think many do across the country), if you invest in something and you take on the risk of that investment, you have fairly earned any return that investment generates. Employee Benefits: Since conservatorship, employees haven't been able to hold stock in the companies - allowing employees to have a financial stake in the future of the companies can drive a competitive edge for recruiting and retention. Health of the Housing Market & Supporting Public Policy: Remaining in conservatorship does present a level of uncertainty for how the GSEs will be managed in the future, which could have a mortgage market impact. Releasing them can allow them to function as healthier, more competitive institutions that would allow them to more effectively support their public mission. Can support initiatives to reduce the cost of home ownership. Legally Required: HERA written in 2008 which governs the conservatorship legally requires release as the conservatorship was designed to be temporary. Taxpayer can enormously benefit: Nobody knows what the government will do to monetize their stake, but right now, taxpayers aren't collecting a dime for taxpayers (while yes, the LP continues to accrue, but remains unmonetized). Releasing the GSEs will monetize the assets for the taxpayer - Tim Howard (prior Fannie Mae CFO for approx. 15 years) has written substantially about this on his blog this year. Highly encourage anyone to check it out that has not read his most recent pieces. RuleofLawGuy also has a great Substack that has covered the merits of a 'Golden Share' concept (also used with Nippon Steel) that could apply here in neutralizing pushback.

I agree with your conclusion, DRValue; also there has been a recent tweet from Ackman indicating the SPS could be amended to be deemed paid off. https://x.com/BillAckman/status/1940486053292658843