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December 2, 2008 8:09:22 PM CST

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Juggled Books at Freddie, Fannie Sparked Fed Takeover

Posted Sep 7, 08 6:17 AM CDT in Business 

(Newser) – Federal advisers pushed for a government takeover of Freddie Mac and Fannie Mae after discovering fuzzy accounting that failed to fully reveal the dire nature of the companies' financial situation, reports the New York Times. The practices, while not illegal, overstated the mortgage giants' capital cushions while attempting to delay the announcement of a capital shortfall until next year. Details of the takeover, which will place both companies in a government-run conservatorship, are expected to be announced today.

Accountants at Freddie Mac, where the questionable practices were more widespread, defied common accounting rules by not devaluing their riskiest loans to reflect current market value, according to investigators. The company also padded its worth with questionable tax credits, and extended the time before loans are reported as overdue. Both presidential candidates have announced their support for the takeover.

Source New York Times

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Mortgage giants Fannie Mae and Freddie Mac will go into government receivership this week, a move intended to restore investor confidence in the failing companies.   (AP Photo/Pablo Martinez Monsivais, file)
Graph reveals plunging fortunes of Freddie Mac, which the Treasury Department is expected to place into receivership this week.   (AP Photo)
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Since 2003, when these companies’ accounting came under question, policy makers have done nothing. - Josh Rosner, analyst at independent research firm Graham Fisher

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Financial Crisis • bailout • housing crisis • Fannie Mae • Freddie Mac • accounting


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