According to regulators, new Dodd-Frank regulations are creating roadblocks for Freddie Mac (FMCC) and Fannie Mae (FNMA) to meet their goal of issuing a new class of mortgage securities by Sunday. FMCC and FNMA missed a deadline to issue the mortgage securities, known as risk-sharing bonds as a result of trying to interpret an esoteric part of the Dodd-Frank Act that intends to make interest-rate swaps and other derivatives safer (i.e. how the new securities would comply with Dodd-Frank). The risk-sharing bonds would offer higher yields than standard mortgage bonds in return for bearing losses when loans go bad
The main issue lies in the fact that the CFTC will expand its definition of a “commodity pool” to include interest-rate swaps and other derivatives often embedded in asset-backed securities on October 12th. Accordingly, issuers of structured securities expressed concern that the CFTC’s new rules would classify bond trusts that use swaps or related hedging tools as “commodity pool operators,” or vehicles that trade commodities on exchanges and require CFTC registration. Furthermore, the delay is impeding a jumpstart of the stagnant market for private mortgage-backed securities without federal guarantees.
View Fannie Mae Charter Act; Freddie Mac Charter Act (links externally to FHFA website). See also: Data as of September 16. 2011 on Treasury and Federal Reserve Purchase Programs for GSE and Mortgage-Related Securities.