By Vicki Needham - 08/19/13 10:42 PM EDT
Fannie and Freddie store away reserves for estimated losses from loans that aren't repaid.
The inspector general’s report said that the accounting policy changes “may have a material impact on the level of loss reserves maintained” by Fannie and Freddie.
In a Securities and Exchange Commission (SEC) filing in April, Fannie said the policy change "presents significant operational challenges" and they were assessing the effects on future financial results.
The accounting change, announced in 2012, was initially supposed to be implemented by the start of next year but the FHFA got a one-year extension. The loan classification system is used by federal bank regulators.
Monday's report said that the 2012 policy change announcement stated "that losses should be recognized on loans that are deemed uncollectible and there should be no delay in loss recognition of probable incurred losses."
"Three years appears to be an inordinately long period to fully implement” the changes, said Steve Linick, the inspector general, in the notice to the FHFA.
The report asked for the FHFA to report the estimated impact on their financial statements if the policy was changed now and to provide justification for the delay.
In response, Jon Greenlee, deputy director of division of enterprise regulation for FHFA, said the current timeline is appropriate because it requires "considerable changes to systems and operations that would take time to complete in a safe, sound and well-controlled manner."
Greenlee said that delaying the changes to risk management policies and operational practices will probably have "considerable operational cost savings."
Fannie and Freddie have reported big profits for most of this year — Fannie sent $10.1 billion to the Treasury Department in second-quarter profits earlier this month while Freddie sent $5 billion in profits, none of which goes toward repaying the $188 billion in taxpayer funds used to keep them afloat through the financial crisis and subsequent economic downturn.