FRE and FNM - Your positions, predictions and odds of nationalization

[black diamond]

Quote from black diamond:

Assuming the government doesn't do anything drastic I think it is all rollover risk in the near term, which doesn't seem high based on the government backing and the recent auctions but who knows what could spook the debt market. Last I looked the interest rate spread between their existing assets and liabilities looked pretty good, so for now checks coming in are bigger than checks going out. At longer horizons massively high defaults could do it but this would take a while.

The fair value balance sheet stuff that shows them to be practically insolvent is based on market values that capitalize expected defaults over the life of their mortgages plus a lot of risk aversion in the current market. Their stocks are overvalued compared to their components but this doesn't mean they are likely to run out of cash soon.

So it looks like they went with convertibles after all. $1 strike to buy 80% of the shares. I am looking forward to hearing their justification for this - it looks like it just dilutes shareholders with no benefits for the debtholders or the mortgage market that I can see. I could see it if it were a control thing so they could take over if management acted recklessly - but under conservatorship they already have control.