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Fannie, Freddie improperly accounting for losses, IG says

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Watchdog Blog,Housing and Urban Development,Federal Bailouts,Kelly Cohen,Inspectors General,Fannie Mae and Freddie Mac

Fannie Mae and Freddie Mac haven't adopted accounting practices to show losses despite being told do so last year by the Federal Housing Finance Agency, according to the agency's inspector general.

An Aug. 5 IG memorandum described concerns about the effect that the delay in writing off single-family mortgages that are more than 180 days delinquent would have on the two mortgage finance giants' financial conditions.

Though required to record the status of a loan like other banks, Fannie and Freddie have not been doing so. By not recording such assets in a timely fashion, they make it impossible to know their actual financial health.

Based on the memorandum, Fannie and Freddie will put the new rules in place by January 2015. Previously, Fannie and Freddie officials promised the new rules would be in effect by April 2012 before changing the date to January 2014.

Not classifying an asset hurts the "safety and soundness" ratings of Fannie and Freddie, according to the memorandum.

The Federal Housing Finance Agency officials believed delaying the new rules were for the better of Fannie and Freddie's financial health. The two government-sponsored enterprises are now working with new "implementation plans" and will continually be monitored by FHFA authorities.

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