Catches aside, plan for Frannie could just work

|By:, SA News Editor

Bruce Berkowitz's presentation of his plan to purchase and recapitalize the mortgage insurance business of Fannie Mae (FNMA +10.5%) and Freddie Mac (FMCC +8.6%) cleverly leads off with quotes from politicians - including the president and FHFA chief Ed DeMarco - calling for private capital to play a larger role in the mortgage market.

Presentation slides here.

Bloomberg's Matt Levine's review here.

His plan actually makes pretty good sense, but with one catch: The conversion of preferred stock for equity in a new, debt-free company with $52B in assets represents somewhere in the area of a $20B-$30B windfall for those owning the preferred.

The plan also talks about bringing competition to the business even as it creates a new cheaply-capitalized company $52B in size. Far smaller competitors can hardly hope to match.

Earlier: Ackman joins the fray