OFHEO Cautions GSEs on Fair-Value Issue

The Office of Federal Housing Enterprise Oversight wants to ensure that Fannie Mae's and Freddie Mac's application of fair-value accounting promotes transparency and consistency in financial reporting and will take corrective actions if the practice "distorts earnings or capital," according to newly issued examiner guidance. "It is important that Fannie Mae and Freddie Mac apply fair value in a sound and consistent manner," OFHEO Director James Lockhart said. OFHEO says it expects the government-sponsored enterprises to document their decisions for applying fair value to selected financial assets and liabilities and provide the regulator with a full fair-value balance sheet each quarter. "If OFHEO detects patterns of use of the fair value option that impair transparency or distort earnings or capital, OFHEO will evaluate whether such application of the FVO is unsafe and unsound," the examiner guidance says.