The Real Deal Miami

Fannie Mae, Freddie Mac finding private capital difficult to come by

October 05, 2012 01:30PM

Breaking up can be hard, especially after nearly four years of a good thing. In 2008, Fannie Mae and Freddie Mac came under the conservatorship of the U.S. government, but now that the government-backed lenders are looking for an injection of private capital, they’re finding that risks and regulations are making that difficult.

According to the Wall Street Journal, Fannie and Freddie were scheduled to issue new risk-sharing bonds to attract private investors but Commodity Futures Trading Commission regulations created during the 2010 Dodd-Frank financial overhaul are adding unanticipated responsibilities and costs.

The “commodity pool” structure of new risk-sharing bonds, which were intended to jumpstart the lackluster private, i.e., non-government backed, mortgage-backed securities market, means that they may require CFTC registration, increasing cost and limiting their appeal to investors.

“I suspect that almost anything Fannie Mae and Freddie Mac want to do would probably run afoul of the [new CFTC] rules,” Andrew Davidson, a mortgage-industry consultant, told the Journal.

And the effects of new regulations, implemented to avoid the kind of financial catastrophe that created a need for government backed banks, goes beyond Fannie and Freddie. New CFTC regulations could also affect real-estate investment trusts, which use interest-rate swaps and other derivatives.

“If it’s hard for the FHFA and [Fannie or Freddie] to issue a securitization, what do you think it’s like for an ordinary commercial issuer?” Davidson, said. [WSJ] — Christopher Cameron