I've been kicking some tires the past few days, trying to get to the bottom of this whole 'risk retention' mess and how it applies to MBS collateralized by Fannie Mae and Freddie Mac loans. As you may recall, last week HUD officials said GSE loans would not be exempt from risk retention meaning that anyone who issues MBS backed by Fannie/Freddie loans must retain 5% of the credit risk (whatever that means.) MBS backed by GNMA collateral (FHA/VA) are exempt. (Question: what do Fannie, Freddie and GNMA all have in common? Answer: Uncle Sam owns all three.) Anyway, GNMA MBS are issued by firms like Wells Fargo and Bank of America. Fannie/Freddie MBS are issued by (you got it) Fannie and Freddie, which means that under pending risk retention rules the two GSEs will have to retain a 5% slice — or so HUD believes. But wait, there's more. We're told HUD sort of misspoke last week and didn't know what it was saying and that Fannie/Freddie MBS will in fact be EXEMPT from risk retention rules. (HUD was just trying to avoid a fight with GOP members of the panel.) Anyway, the final rule will be out next week (at least one version of it) so maybe all this gets worked out in the wash. Or not. Stay tuned.
