OFHEO Widens Freddie Probe

The Office of Federal Housing Enterprise Oversight has widened its investigation of Freddie Mac's accounting scandal to examine the role Wall Street securities firms may have played in helping the giant mortgage company create artificial losses and smooth out its earnings."We are in the process of reviewing the counterparty roles in the transactions relative to our Freddie Mac investigation," an OFHEO spokeswoman said. The Wall Street Journal reported that OFHEO is looking at Morgan Stanley and Citigroup as well as other securities firms. An internal Freddie Mac investigation, known as the Doty Report, revealed numerous transactions that Freddie Mac conducted to smooth out its earnings. In one transaction, Freddie created a giant $30 billion mortgage-backed security that briefly changed hands with a counterparty. Freddie repurchased the security and booked a $726 million loss.