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Dodd-Frank impeding new class of mortgage securities

New Dodd-Frank regulations are making it impossible for Fannie Mae and Freddie Mac to meet their goal of issuing a new class of mortgage securities by Sunday.

Dodd-Frank, industry experts said, complicated the offering. The risk-sharing bonds would offer higher yields than standard mortgage bonds in return for bearing losses when loans go bad, FoxBusiness.com reports.

The risk-sharing bonds would increase risk for private investors while also increasing the reward from the current system, which sees both Fannie and Freddie guarantee that investors will receive payments in the event that borrowers default.

The offer of the bonds, however, has been delayed by regulators attempting to interpret part of Dodd-Frank that intends to make interest-rate swaps and other derivatives safer.

The stall in the offering is impeding a jumpstart of the stagnant market for private mortgage-backed securities without federal guarantees. Making investors comfortable with their inherent risk is expected to accelerate the shift of responsibility for U.S. mortgage funding from the taxpayer-supported Fannie and Freddie.

The risk sharing initiative “could help support our broader efforts to restart the private mortgage market, shrink the government’s footprint in housing finance, and protect the long-term interests of taxpayers,” Michael Stegman, a senior Treasury advisor for housing finance, said in June, according to FoxBusiness.com.