Moelis updates blueprint for Frannie fix one year later

|By:, SA News Editor

A plan to rebuild capital at Fannie Mae (OTCQB:FNMA +0.4%) and Freddie Mac (OTCQB:FMCC -0.7%) as shareholder-owned single-purpose insurers is updated by Moelis & Co., which advises certain non-litigating junior preferred shareholders in the government-sponsored enterprises.

The updated version of "Blueprint for Restoring Safety and Soundness to the GSEs" calls for these actions within the next four years:

    Earnings retention;

    Issue new GSE common stock into the capital markets;

    Secondary offerings of Treasury's holdings of nearly 80% of common stock in the GSE;

    It also sees paying an ongoing market-based commitment fee to Treasury for its explicit catastrophic support and compliance with FHFA's recently proposed Enterprise Capital Requirements.

Since the original blueprint was issued the indicative value of the Treasury Department warrants in Frannie and Freddie  has substantially increased based on lower tax rates from tax reform and better-than-expected credit performance, Moelis says.

Also, the government has been completely repaid by Fannie and Freddie with returns now exceeding the original 10% annualized rate of return established when Fannie and Freddie entered conservatorship.

Fannie and Freddie have been running under government conservatorship since the 2008 financial crisis.

Previously: U.S. House takes a stab at Fannie-Freddie reform (Sept. 7)

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