The regulatory reform bill that cleared the Senate is supposed to impose risk retention requirements on MBS issued by Fannie Mae and Freddie Mac, but some legislative experts say the language adopted may have missed the mark.

S. 3127 passed by the Senate imposes a 5% risk retention requirement on issuers of MBS through a change in the securities laws, according to an analysis prepared by Anne Canfield & Associates. The Washington consulting firm points out that under current securities law the GSEs are exempt from registering their MBS with the Securities and Exchange Commission.

The bill, drafted by Sen. Chris Dodd, D-Conn., does not override that exemption and therefore, does not subject Fannie and Freddie's MBS to SEC regulation.

"At best this is very unclear," Canfield told ASR's sister publication National Mortgage News. "But we don't think the GSEs are covered because the language in the bill does not address their underlying exemption in current securities law."

The Mortgage Bankers Association (MBA) would like Congress to specifically exempt the GSEs from risk retention. "Fannie, Freddie and Ginnie are not exempt from risk retention in the Senate bill, though the regulators could exempt them," said an MBA spokesman.

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