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Mr. Kellermann had won a favorable accounting ruling from the Securities and Exchange Commission. His boss, John Koskinen, acting chief executive officer, was pleased, and told the finance chief to stop worrying about whether Freddie would meet its May 15 deadline for filing quarterly results. "If we're late, we're late," Mr. Koskinen recalls saying.
But Mr. Kellermann, 41 years old, was visibly stressed. Mr. Koskinen says he advised his CFO to take a few days off. That evening, Mr. Kellermann said he would take off the next day. Mr. Koskinen suggested the rest of the week, at least. "We'll be in good shape.
In February, the Obama administration announced a plan under which Fannie and Freddie would lower mortgage payments for millions of Americans in an attempt to prevent foreclosures. That may be good for the economy, but it will require the companies to give up income and may slash the value of many mortgage securities they hold.
Mr. Kellermann and other Freddie executives felt they needed to issue a warning in their annual SEC filing: The plan was likely to hurt the company's finances, notably the valuation of guarantees it made on millions of mortgages. Freddie believed that certain accounting rules could force it to take a pretax charge against earnings of roughly $30 billion as a result of the plan.
The FHFA, which regulates Fannie and Freddie, felt that Freddie's initial draft of the warning put too much emphasis on that risk, says one person involved in the discussions. Freddie, this person says, was hoping the SEC would let it maintain an exemption from certain accounting rules and thus allow it to avoid a big earnings hit. After tense exchanges between Freddie and the regulator, the two sides came up with compromise wording about the risk.
The day before Mr. Kellermann's death, the SEC agreed to Freddie's preferred accounting treatment. Mr. Kellermann didn't seem excited, but remained "subdued," says one person who worked for him.
This potential expense was related to the Obama administration's housing recovery program, for which Freddie Mac playing a part in modifying the mortgages of homeowners facing foreclosure. Many of these loans had been bundled into securities. So to modify the mortgages, Freddie Mac has to pluck them out of the securities, which entails reassessing the value of the loans and marking them down to their current market price. The company might then have to record a charge to reflect these decreased values.
Originally posted by poet1b
Maybe the holders of these bundled securities would rather have hung on to the foreclosed properties? Stick the government with the losses, and keep the properties. This would be an excellent plan if it could be pulled off.
Kellermann comes up with a plan that allows Obama's mortgage plan to go into effect without Freddie Mac claiming a 30 Billion dollar loss, and that night the hitman shows up at his door.