Report: Fannie and Freddie’s Accounting Masks Major Losses

Mortgage101

Mortgage finance companies Fannie Mae and Freddie Mac posted profits in the latest quarter, a notable change from their consistent losses during the Great Recession. Yet now that they seem to have turned a financial corner, it looks like there might be some lingering problems, according to the agencies’ regulator.

The Federal Housing Finance Agency released details Monday that show Fannie and Freddie’s profits may be misleading as they are not yet reporting all their losses due to loan write-offs. Back in April 2012, the FHFA gave the two companies three years to make an adjustment to their accounting practices that would require them to charge off all loans that were delinquent by more then 180 days. By not writing all these loans off, the profits seem higher because the losses from these mortgages nearing foreclosure are not reflected.

They have until January 2015 to make the change that would put them more in line with standard practice for other financial institutions.

Fannie and Freddie do not think the new requirement will produce different financial outcomes. “The guidance FHFA has issued would change our methodology for charging off loans, but would not materially change our results,” said Andrew Wilson, a spokesman for Fannie Mae in a Reuters article.

The FHFA has said otherwise, writing in its report that the policy change could cause the companies to “charge off billions of additional dollars related to loans.” In fact, the FHFA’s inspector general is calling for moving up the deadline. “Three years appears to be an inordinately long period,” wrote inspector general Steve Linink in an email.

The two firms were seized by the government in 2008 and have cost taxpayers almost $200 billion to date.

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