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Watchdog: Fannie, Freddie Mask Billions in Losses
Aug 19, 2013 | Foxbusiness
Fannie Mae and Freddie Mac are masking billions of dollars losses
because of the level of delinquent home loans they carry, a federal
watchdog said in an internal report, and it said the companies should be
required immediately to recognize the costs of some bad mortgages.
The report, written by the inspector general for the Federal Housing
Finance Agency and reviewed by Reuters, said the FHFA's timeframe for
mortgage finance companies Fannie and Freddie to have up to two years to
recognize the cost of mortgages delinquent at least 180 days was
"inordinately long."
The change in the accounting treatment of these delinquent loans
potentially could require Fannie and Freddie, which have rebounded to
enormous profitability in the past two years as the housing market
recovered, to "charge off billions of additional dollars related to
loans," the inspector general's report stated.
The FHFA, which regulates Fannie Mae and Freddie Mac, said the two are
on track to implement the new standards within the next two years, and
in a letter sent to the inspector general said it views the potential
losses "to be reasonable."
Fannie Mae and Freddie Mac were seized by the U.S.
government in September 2008 as rising mortgage losses threatened them
with insolvency. The mortgage companies have cost taxpayers almost $188
billion to stay afloat.
The majority of Fannie Mae and Freddie Mac's losses are a result of
guaranteeing mortgages that defaulted during the housing crisis. Fannie
and Freddie have reduced their funds reserved to cover potential losses
on bad loans due to the strengthening housing sector and higher home
prices.
The FHFA noted the new accounting methods would involve "changes in a
significant policy," and as a result require a lengthy implementation
period. The regulator consulted with Fannie Mae and Freddie Mac and has
allowed the mortgage companies until Jan. 1, 2015, to make all of the
adjustments, which will be rolled out in stages.
The inspector general's office said in the report, dated Aug. 2, that
Fannie and Freddie have not publicly disclosed the accounting changes.
The report called on the FHFA to require Fannie and Freddie to conduct
the changes at a faster pace, with the inspector general primarily
concerned with loss estimates that are realized in Fannie and Freddie's
public financial statements.
Fannie Mae on Aug. 8 reported a $10.1 billion profit for the second
quarter and said it would send a $10.2 billion payment to the U.S.
Treasury for its federal aid. It was the sixth straight profitable
period for the company and compares with a $5.1 billion profit for the
year-earlier quarter.
For the second quarter, Freddie Mac posted its second largest ever
quarterly profit, reporting net income of $5 billion, and said it would
make a $4.4 billion dividend payment as part of the reimbursement for
its rescue aid.
Work on the accounting changes began in April 2012. At that time, Fannie
and Freddie were asked by the FHFA to provide an initial implementation
plan and to take a closer look at new asset classifications, according
to the FHFA's letter.
Both companies submitted the implementation plans by October 2012, the
letter stated. During that time, FHFA did its own analysis on Fannie and
Freddie's 180-day delinquent loans' performance and found the
"financial impact to be reasonable."
| Comment: I'm currently working on an exposé on the real estate market in Florida, and how they are scamming people out of millions. What is
going to be revealed will shock you and wake you up to the kind of homes that are being sold to the unwitting public, a type of prison complex especially
designed to monitor people and drain them of their entire lives. Look back soon.
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