Grand Rapids, MI -- (SBWIRE) -- 08/29/2013 -- We all know it is difficult to stay abreast of everything that is happening financially in the United States today. Dennis Tubbergen, a financial advisor, author, radio show host and CEO of PLP Advisors, LLC can be counted on to give a hand when it comes to understanding the latest events in U.S. and world economics.

Whether people enjoy his weekly newsletter at http://www.moving-markets.com or his blog at http://www.dennistubbergen.com, Tubbergen is dedicated to sharing his viewpoints and opinions. On August 28, 2013 his blog was titled Fannie and Freddie: Are Record Profits An Illusion?

“The Los Angeles Times reported that the mortgage companies Fannie Mae and Freddie Mac have delayed the implementation of accounting rules that would require the companies to account for losses on delinquent mortgages," began Tubbergen. "This in spite of the fact that the companies are now throwing off record profits with the recent rebound in the housing market."

Below he quotes from the August 19, 2013 article.

Resurgent bailout recipients Fannie Mae and Freddie Mac have been avoiding billions of dollars in potential long-term losses by delaying the use of new accounting measures that would require them to write off more delinquent mortgages, a government watchdog agency said in a letter released Monday.

Despite a 2012 determination by their regulator, the Federal Housing Finance Agency, that the new accounting rules should be adopted, the agency has allowed Fannie and Freddie to delay implementation until Jan. 1, 2015, according to a letter from Steve A. Linick, the regulator's inspector general.

"Three years appears to be an inordinately long period to fully implement" the new rules, Linick wrote to acting FHFA director Edward J. DeMarco on Aug. 5.

The write-offs would eat into recent record profits by the two mortgage finance giants as the housing market has recovered.

Fannie and Freddie were on the brink of bankruptcy after the subprime housing bubble burst. The government seized them in 2008 and have pumped in about $187 billion in taxpayer aid.

The firms have paid the government $132 billion in dividends on the bailout money and plan to make another payment of $14.6 billion next month.

Those payments -- more than half of which have come this year -- have helped the federal government significantly reduce its budget deficit and delay the need to raise the nation's debt limit until this fall.

The accounting rules, which federal banking regulators apply to other financial institutions, require Fannie and Freddie to set aside money to cover losses on any single-family home mortgage that is more than 180 days delinquent.

Linick did not provide a specific estimate of how much in mortgages Fannie and Freddie would have to charge off under the accounting rules.

But his letter said a top FHFA official, Jon D. Greenlee, told the inspector general's office in May that implementing the rules "could potentially require them to charge off billions of additional dollars related to loans classified as 'loss.'"

The FHFA should require Fannie and Freddie "to promptly report" to the agency and the inspector general's office the estimated effect of the rules on the companies' financial statements, Linick wrote.

In response to Linick's letter, Greenlee, the deputy director of the FHFA's Division of Enterprise Regulation, wrote on Aug. 9 that agency officials believed the delay in implementing the accounting rules was appropriate.

The deadline for full implementation has since been delayed to Jan. 1, 2015, Linick said. It's important to the safety and soundness of Fannie and Freddie for them to appropriately classify the risk of the mortgages it owns or backs, and to set aside the appropriate reserves to cover losses, he said.

"While accounting rules that accurately account for losses have not been implemented at Fannie or Freddie, the same thing could be said for banks," explains Tubbergen. "The Financial Accounting Standards Board has a rule that requires companies to mark their assets to market."

The rule, number 157, is designed to provide an accurate picture of the assets a company owns and reports on its balance sheet (from WordPress FASB Rule 157).

"At one time, banks loved this rule," noted Tubbergen. "Prior to 2008, this accounting method allowed banks to show terrific profits in real time. However, in about 2008 things changed. Instead of showing terrify real time profits, this rule would require banks to show losses real time."

According to Tubbergen, in 2008, during the fiscal crisis, Congress came to the rescue of the bankers. The Emergency Economy Stabilization Act of 2008, Congress gave the SEC the authority to suspend Mark-to Market accounting. FASB rule 157 was suspended on April 2, 2009.

"Since that time, banks don’t have to mark their assets to market making some bank’s balance sheets as fictional as the balance sheets at Freddie and Fannie," concludes Tubbergen.

To read the blog in its entirety go to http://www.dennistubbergen.com and select his August 19, 2013 entry.

Tubbergen’s syndicated radio show can be heard on metro Michigan stations WTKG 1230 AM and WOOD Newsradio1300 AM and 106.9 FM.

About Dennis Tubbergen
Dennis Tubbergen has been in the financial industry for over 25 years and has his corporate offices in Grand Rapids, Michigan. Tubbergen is CEO of PLP Advisors, LLC and has an online blog that can be read at whttp://ww.dennistubbergen.com. To view Tubbergen’s latest Moving Markets? newsletter, go to http://www.moving-markets.com.

The opinions expressed herein are those of the writer and not necessarily those of USA Wealth Management, LLC. This update may contain forward-looking statements, including, but not limited to, statements as to future events that involve various risks and uncertainties. Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause actual events or results to differ materially from those that were forecasted. Therefore, no forecast should be construed as a guarantee. Prior to making any investment decision, individuals should consult a professional to determine the risks, costs, benefits and fees associated with a particular investment. Information obtained from third party resources is believed to be reliable but the accuracy cannot be guaranteed.