Fannie, Freddie accounting trick?
By The Los Angeles Times
Published: Tuesday, Aug. 20, 2013, 12:01 a.m.
WASHINGTON — Fannie Mae and Freddie Mac have been avoiding billions of dollars in potential long-term losses by delaying the use of new accounting measures that would require them to write off more delinquent mortgages, a government watchdog agency said in a letter released on Monday.
Despite a 2012 determination by their regulator that the new accounting rules should be adopted, the agency has allowed Fannie and Freddie to delay implementation until Jan. 1, 2015, according to a letter from Steve A. Linick, the regulator's inspector general.
“Three years appears to be an inordinately long period to fully implement” the new rules, Linick wrote to Federal Housing Finance AgencyActing Director Edward J. DeMarco on Aug. 5.
The write-offs would eat into recent record profits by the two mortgage finance giants.
Fannie and Freddie were on the brink of bankruptcy after the subprime housing bubble burst. The government seized them in 2008 and has pumped in about $187 billion in taxpayer aid. The two institutions have paid the government $132 billion in dividends on the bailout money and plan to make another payment of $14.6 billion next month.
Those payments — more than half of which have been made this year — have helped the federal government significantly reduce its budget deficit.
The accounting rules, which federal banking regulators apply to other financial institutions, require Fannie and Freddie to set aside money to cover losses on any single-family home mortgage that is more than 180 days delinquent.
Linick did not provide a specific estimate of how much in mortgages Fannie and Freddie would have to charge off under the rules.
But his letter said a top FHFA official, Jon D. Greenlee, told the inspector general's office in May that implementing the rules “could potentially require them to charge off billions of additional dollars related to loans classified as ‘loss.' ”
The FHFA should require Fannie and Freddie “to promptly report” to the agency and the inspector general's office the estimated effect of the rules on the companies' financial statements, Linick wrote.
In response to Linick's letter, Greenlee, the deputy director of the FHFA's division of enterprise regulation, wrote on Aug. 9 that agency officials believed the delay in implementing the rules was appropriate.
Fannie and Freddie have said in regulatory filings this year that they were assessing the effect of the rules.
The FHFA issued a bulletin in April 2012 directing Fannie and Freddie to write off an outstanding loan balance above a property's fair value of mortgages that were more than 180 days delinquent. Although the bulletin was supposed to be effective when it was issued, the FHFA gave Fannie and Freddie executives time to submit plans for implementing the rules.
Linick said it's important to the safety and soundness of Fannie and Freddie for them to appropriately classify the risk of the mortgages it owns or backs, and to set aside the appropriate reserves to cover losses.
Show commenting policy
TribLive commenting policy
You are solely responsible for your comments and by using TribLive.com you agree to our Terms of Service.
We moderate comments. Our goal is to provide substantive commentary for a general readership. By screening submissions, we provide a space where readers can share intelligent and informed commentary that enhances the quality of our news and information.
While most comments will be posted if they are on-topic and not abusive, moderating decisions are subjective. We will make them as carefully and consistently as we can. Because of the volume of reader comments, we cannot review individual moderation decisions with readers.
We value thoughtful comments representing a range of views that make their point quickly and politely. We make an effort to protect discussions from repeated comments either by the same reader or different readers.
We follow the same standards for taste as the daily newspaper. A few things we won't tolerate: personal attacks, obscenity, vulgarity, profanity (including expletives and letters followed by dashes), commercial promotion, impersonations, incoherence, proselytizing and SHOUTING. Don't include URLs to Web sites.
We do not edit comments. They are either approved or deleted. We reserve the right to edit a comment that is quoted or excerpted in an article. In this case, we may fix spelling and punctuation.
We welcome strong opinions and criticism of our work, but we don't want comments to become bogged down with discussions of our policies and we will moderate accordingly.
We appreciate it when readers and people quoted in articles or blog posts point out errors of fact or emphasis and will investigate all assertions. But these suggestions should be sent via e-mail. To avoid distracting other readers, we won't publish comments that suggest a correction. Instead, corrections will be made in a blog post or in an article.
- Pandora sued by record companies
- Investment in Western Pa. startups reaches 5-year high
- Pa. unemployment rate falls to lowest since 2008; 12,000 more enter workforce
- Squeezed by competition, Chobani to expand offerings
- Chocolate prices expected to soar as ingredients grow more expensive
- Mazda recalls 109,000 older SUVs
- Emboldened by Italy move, QVC to expand into France
- Shale pioneer hires Chesapeake for drilling job
- Wages have soared in Pittsburgh, but economy appears to have stalled
- Chrysler’s Easter eggs fun for vehicle owners
- Long-term unemployed struggle to find — and keep — new jobs