Wednesday, May 14, 2008

On Freddie Mac Accounting Change

by Bill McBride on 5/14/2008 02:55:00 PM

From Bloomberg: Freddie Mac Accounting Changes Reduce Losses By $2.6 Billion (hat tip SC)

A change in the way the company values some assets that aren't traded reduced credit losses by $1.3 billion, while a separate rule that lets the company pick and choose which assets to measure contributed an equal amount as well, Freddie Mac said.
...
Financial Accounting Standard 157 allows companies to estimate a value on holdings that aren't traded. Freddie Mac increased its Level 3 assets under FAS 157 to $156.7 billion, or 23 percent of its assets, from $31.9 billion as of December. The company also adopted FAS 159, which lets it pick which financial assets and liabilities to measure at fair value through earnings.
...
Chief Executive Officer Richard Syron said the new accounting better reflects ``the underlying performance of our business'' as the market continues to deteriorate.
So much for transparency.

Also, from the WSJ: Freddie Mac Posts $151 Million Loss
Freddie also reported that the "fair value," or estimated market value, of its net assets was a negative $5.2 billion as of March 31, compared with a positive $12.6 billion three months earlier. That means the estimated market value of assets falls short of estimated liabilities, largely stemming from the costs of mortgage defaults. [Chief financial officer] Mr. Piszel said the negative fair value reflects current distressed prices for mortgage securities and has "no impact" on the operations of a company like Freddie that is a long-term holder of mortgages.