GSE's Still Under Conservatorship
- FHFA authority: The Federal Housing Finance Agency (FHFA) has
broad authority over the GSEs, including the power to place them in
receivership. Receivership allows the FHFA to restructure the capital
stack, potentially wiping out the value of junior preferred shares and
common stock. This gives the FHFA a strong hand in negotiations.
However, there are some nuances to consider:
- Repurchase option: The GSEs might use proceeds from selling common
stock to repurchase outstanding junior preferred shares. In this scenario,
negotiation might be around the price offered for the repurchase.
- Signaling effect: While they might not have significant power to
influence the overall structure, junior preferred shareholders could still
influence the terms through a coordinated effort. This could signal to the
FHFA or the government the potential for legal challenges or negative
publicity.
Overall, the negotiating power of junior preferred equity
in a Fannie Mae and Freddie Mac capital stack or restructuring is limited due
to their subordinated position, reliance on government backing, and the
authority of the FHFA. However, there might be some room for negotiation on
specific aspects like repurchase price or influencing the process through
collective action.