SEC Guides Freddie Away from Hefty Charges

In a report filed by James Hagerty of the Wall Street Journal, an unnamed Securities and Exchange Commission spokesperson claims the SEC advised Freddie Mac (FRE) on how to avoid coughing up $30bn in charges. The fine would deal too great a blow to the earnings of the secondary market player, the WSJ reports, and so the SEC rendered a favorable accountancy ruling to prevent the fee against earnings. Hagerty writes: “The company said [in its annual report in March] that the need to remove modified loans from mortgage-backed securities might mean that its guarantees on those loans were no longer eligible for an exception from derivative accounting under an accounting standard known as SFAS 133. If so, the company estimated in March, it might have to take a pretax charge against earnings of $30 billion as early as the second quarter of this year.” But what comes around goes around as it is believed that if Freddie would need to pay the charge, then it would request addition capital from the Treasury Department. The US government took control of the firm in September 2008 and is insuring Freddie stays in business, despite collapsing home prices across the country, in an effort to keep defaulting borrowers out of foreclosure. Write to Jacob Gaffney.