Do Fannie Mae (FNM) And Freddie Mac (FRE) Know What They Have On Their Books?

One of the most odd piece of financial news so far this year is that the federal government is sending in some of its accounting experts to see what the books of Fannie Mae (FNM) and Freddie Mac (FRE) look like.

Examiners from the Federal Reserve and the Comptroller of the Currency has been asked to read though the financial statements and examine the loan portfolios of the two huge mortgage companies. Apparently no one in Congress or the administration trusts that management has any idea what their numbers look like.

According to The New York Times, "Some lawmakers and critics are concerned that a further sharp erosion in housing prices could lead to more foreclosures than Fannie and Freddie could absorb without a large investment or loan from the government."

While the mortgage market is especially fluid now, Wall St. should suppose that the accountants inside Freddie Mac and Fannie Mae know their own numbers better than outsiders who are simply walked in to review sets of books that they have probably never laid eyes on before.

The fact that the government has to dispatch its own teams in to make certain that the firms have a solid idea of how they are doing should point to a concern that the managements of the mortgage operations are buffoons.

If that is the case, why the government and their boards of directors allow Fannie Mae and Freddie Mac executives to keep their jobs may be the greatest mystery of all.

Douglas A. McIntyre