Oct. 25: A primer on why, financially, releasing Freddie & Fannie is a nightmare; Saturday Spotlight: AI company Pranjna.ai

There are some creative thinking and collaborations out there; anyone who walked around the exhibition hall this week at the MBA Annual saw that. For another example, a startup working on industrial heat batteries has linked up with an oil company (an unlikely partner) in its quest to commercialize its carbon-free alternative battery. Holmes Wester Oil Corp uses gas-fired boilers in its oil recovery system but has replaced one of them with Rondo Energy’s battery. It is a 100-megawatt-hour solar array used to heat up clay bricks with electricity. This heat is eventually used to power a boiler that forces oil out of the ground. As a result, the oil company avoids 13,000 tons of carbon dioxide emissions annually, and the clay battery company gets to experiment. Lenders are trying new things as well, as business is solid but often hard to get. Last month, according to Curinos’ new proprietary application index, refinances increased 47 percent in September but the purchase index decreased 2 percent for September as a whole. September 2025 funded mortgage volume increased 6 percent YoY and increased 2 percent MoM. “Curinos sources a statistically significant data set directly from lenders to produce these benchmark figures. We drill into this data further here.”

Saturday Spotlight: Prajna.ai

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“AI-powered texting that turns stale leads into funded loans.”

In 3–5 sentences, describe your company

Prajna.ai is an AI platform built specifically for mortgage lenders and financial institutions to scale customer engagement using intelligent SMS and voice agents. Retail loan officers, consumer-direct teams, and marketing groups rely on Prajna to revive expired pre-approvals, re-engage past borrowers, and qualify HELOC opportunities at scale.

Founded in 2023, Prajna is a member of the NVIDIA Inception and Google for Startups AI programs, giving it access to advanced AI infrastructure and technical expertise that accelerate innovation. Since launch, Prajna has powered thousands of campaigns and handled tens of thousands of borrower conversations, consistently moving borrowers from first text → application → funded loan.

Lenders are deploying Prajna’s AI-assisted texting for appointment scheduling, borrower qualification, and compliant outreach at scale. Campaigns include automated STOP/DNC management, opt-out handling, and positive-response detection, ensuring safe and effective engagement. Results have shown strong borrower response rates across nurture, refinance, and pre-approval campaigns, converting dormant databases into meaningful loan opportunities.

Tell us about your employee growth

Prajna fosters a hands-on innovation culture where product and engineering teams experiment with new AI tools and workflows in collaboration with clients. Employees benefit from access to cutting-edge training and resources through NVIDIA and Google partnerships, with internal projects often becoming production features — from multilingual service agents to compliance automation. This approach ensures employees are continually developing while directly shaping client outcomes.

How do you contribute to culture?

Prajna is a hybrid-first company with hubs in Chicago and distributed team members nationwide. Regular off-sites and summits bring employees together to strengthen relationships and align around the mission. What Prajna is most proud of is the depth of its customer partnerships. The company works shoulder-to-shoulder with lenders to launch new AI campaigns, embedding as an extension of client teams and aligning around borrower outcomes.

If you’re ready to turn stale pipelines into funded business, connect with Prajna.ai to design your first AI-assisted texting campaign.

(For more information on having your firm’s extracurricular activities, employee growth, and your charitable side featured, contact Chrisman LLC’s Anjelica Nixt.) 

Financial hurdles to releasing Freddie & Fannie

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(This is a repeat of a piece that I sent out in early September. Do you have the feeling that releasing the GSEs from conservatorship is unlikely? I hear enough theorizing about releasing Freddie and Fannie from conservatorship which totally disregard the facts of the contracts which are in place that I thought this deserved a repeat. These contracts may also explain why the government is looking at other options.)

Remember that 46 independent mortgage banks (IMBs) sent a letter to Treasury Secretary Bessent and FHFA Director Pulte identifying IMB priorities for a Fannie/Freddie Exit from Conservatorship, to protect smaller IMBs and consumers. And there was an IMB sign-on letter, spearheaded by the Community Home Lenders of America (CHLA).

You or I could easily buy stock in Freddie Mac or Fannie Mae, so it isn’t an IPO (initial public offering) in the true sense of the word. Ending the conservatorship can’t be done with a wave of a wand or a tweet. The capital structures of Fannie Mae and Freddie Mac are a little complicated, but here’s roughly the situation. (The exact numbers change every month and quarter, but this will give you a sense of things.)

Fannie and Freddie have total assets of $7.8 trillion ($4.4 trillion for Fannie, $3.4 trillion for Freddie) and liabilities of $7.6 trillion ($4.3 trillion, $3.3 trillion). This leaves them with total net worth (shareholders’ equity, assets minus liabilities) of $160.7 billion ($98.3 billion, $62.4 billion).

But the US government has a $348.4 billion senior preferred claim on that net worth ($216.2 billion, $132.2 billion). After the US government, there are regular preferred-stock holders with $33.2 billion of preferred claims ($19.1 billion, $14.1 billion).

After paying out the senior preferred and the regular preferred, whatever’s left over goes to the common shareholders. The biggest common shareholder is also the US government, which gets 79.9 percent of that. Various regular shareholders, of whom Bill Ackman’s Pershing Square Capital Management is perhaps the best-known, receive the other 20.1 percent.

The essential thing to notice there is that the US government’s $348.4 billion senior preferred claim is quite a bit larger than the total shareholders’ equity of $160.7 billion. If Fannie and Freddie liquidated today and returned all their money to shareholders, the U.S. government would get all of it. If Fannie and Freddie’s shareholders’ equity doubled, the US government would still get all of it. The common stockholders, and the holders of regular preferred stock, are underwater by many tens of billions of dollars.

Fannie and Freddie had total net income of $28.8 billion last year ($17 billion and $11.9 billion); at that rate, it would take about 12 years to earn enough to pay back the government’s $348.4 billion claim and have anything left over for regular preferred shareholders (and another year and change to pay off those preferreds and have anything left over for the common stock). Or it would if Fannie and Freddie worked like normal companies. But in fact, the way they work is that every time their net worth increases, the government’s senior preferred claim (that $348.4 billion) increases by the same amount. So, if they earn $30 billion this year, the government’s claim will increase to $378.4 billion, and the shareholders will be no closer to getting paid than they are now.

Bloomberg reminds us that “In the 2008 financial crisis, Fannie and Freddie ran into trouble, and the US government provided hundreds of billions of dollars of cash and credit lines to bail them out. From first principles, there are two plausible ways to do that. Lend them the money, charge them a high interest rate, and take a big equity kicker (say 79.9 percent of their stock). Then hope they get back on their feet, pay back the money with interest, and create a ton of value for shareholders, including the government.

“Just nationalize them entirely, zero the shareholders, zero the preferred shareholders, and have the government take all the upside and all the downside.

“Either of those approaches could have been fine, and ex ante, in 2008, they didn’t even look that different. But what the government actually did was first No. 1: bailout with high interest and 79.9 percent equity stake, and then, later, in 2012, shifting to No. 2, changing the terms of the deal so that the interest on the bailout went from 10 percent per year to ‘all of your net income for the foreseeable future.’ There is almost no way for the common and preferred shareholders to get anything; whatever money Fannie and Freddie make goes to the government. But the common and preferred still float around, and their holders have ideas. The ideas are mostly “this was unfair and will eventually change.

“And it does seem like something will change. The Trump administration is talking more and more about ending the government’s control and ownership of Fannie and Freddie. One extreme of that range would be for the government to stand on its rights: Fannie and Freddie, right now, owe the government more than twice their net worth, and to end government control they would need to pay that back. The arithmetically simple way to do that would be for Fannie and Freddie to go out to the market and raise new capital to (1) pay back the government and (2) be well capitalized as standalone companies. ‘Well capitalized,’ in these discussions, tends to mean shareholders’ equity of at least 2.5 percent of assets, which works out to about $194 billion of equity. So, if Fannie and Freddie went out and did initial public offerings to raise $542.5 billion of new capital ($325 billion for Fannie and $217.5 billion for Freddie) they would have enough to pay back the government and be well capitalized for the future.

“This is arithmetically simple but practically impossible, because you can’t raise $542.5 billion in an IPO (or two… particularly not just to repay the government and leave the companies with less book equity than the amount they raised.) That’s more than the total amount of money raised in all US initial public offerings over the last 10 years.

“If somehow you did do it, existing shareholders would be massively diluted: Pro forma for half a trillion dollars of new equity, the capital structure would be something like 99.99% new investors, 0.008% the US government (which owns 79.9% of the equity now) and 0.002% Bill Ackman and friends. Fannie’s common stock closed at $10.78 yesterday, Freddie’s at $7.975. Those shares would be… not literally zeroed, but pretty much zeroed, if Fannie and Freddie had to go out and raise new capital to pay back the full amount they owe the government.

“The other end of the range would be for the government to say, ‘you know what, never mind, this $348.4 billion number is kind of fake, that claim is unfair, and we are going to write it down to zero.’ If you do that, then Fannie and Freddie can just keep their existing shareholders’ equity ($160.7 billion). That is almost enough for them to be well capitalized, though they’d still have to do very large IPOs, perhaps $30 billion total, to get all the way to 2.5 percent.

“If you do that, then the existing shareholders will be in good shape. Ignoring a potential new equity raise, the existing shareholders would own 20.1 percent of the companies (the U.S. government would own the other 79.9 percent), with a book value per share of around $14 or $15. The existing common shareholders would get something like $25 billion of book value in the companies, the preferred shareholders would get about $33 billion (the face amount of their preferred), and the US government would have a 79.9 percent equity stake with something like $100 billion of book value.

“Notice that the $100 billion for the government here is less than the $348 billion in the other scenario. The other scenario is not realistic, though, because it relies on (1) making all of the existing shareholders really mad and then (2) doing a half-trillion-dollar IPO. The softer scenario, the one where the government gives up its $348 billion claim, seems more realistic, and would actually get the government $100 billion (or more) worth of stock.

“Still the point here is that there is a range, and the government can kind of do whatever it wants within that range. It can stand on its rights! It can demand the $348.4 billion, which would probably prevent the re-privatization of Fannie and Freddie, or it can give up the whole $348.4 billion, or it can do something in between. ‘Do a $60 billion IPO and give us half the money to cancel that senior preferred claim’ seems fine, for instance. ‘Cancel the senior preferred claim but give us 95 percent of the common equity instead of 79.9 percent,’ why not.

“One possibility here is for the government to cancel its entire $348.4 billion senior preferred claim for the benefit of existing common and preferred shareholders. That is obviously what those shareholders want! But the government doesn’t have to do that, and it can drive a harder bargain. Which it might do if … it … wants … money? For instance?”

Fannie and Freddie are giant companies that generate a lot of money. Right now, the U.S. government is entitled to essentially 100 percent of that money. To re-privatize them, it would have to give up some of that money. The expectation, which is not unreasonable, is that the government will give up some of that money to Bill Ackman. But that is not an absolute requirement of re-privatizing them, and if the government is looking to keep as much money as possible, that might not be great for the shareholders.

If you were an elephant, what would you do with a pumpkin? Here’s a video for the kids.

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