GSE delay in bad loan recognition masking billions in losses

|By:, SA News Editor

Those Fannie Mae (FNMA.OB +3.7%) and Freddie Mac (FMCC.OB +3.1%) profits that everybody wants a piece of may not be as high as reported.

The GSEs are masking billions of losses on delinquent loans because of the way they account for them, according to an FHFA report seen by Reuters. The inspector general's study says the companies are allowed an "inordinately long" two years to recognize the cost of 180-day delinquent mortgages.

Accounting changes are on the way, but the FHFA - noting the significance of the new policy - is allowing the companies until 2015 to make the adjustments and even then they'll be rolled out in stages. Neither Fannie nor Freddie have yet to publicly disclose the changes.