Accounting Standard for the Upfront g-fee "Deferred Income", beyond shenanigans.
Two different issues:
1- Effective January 1st, 2010: "Changes in Accounting Standards Related to Accounting for Transfers of Financial Assets and Consolidation of VIEs". Their mortgage loans and the debt from their securitization trusts are now subject to consolidation on the balance sheets.
It prompted charges in Equity (Both in the Retained Earnings accounts and in the AOCI line item)
I find it extraordinary that in Freddie Mac, it resulted in a charge of $-11.7B, but a windfall of $3B in Fannie Mae.
It kick-started the Deferred Income accounting of the Upfront g-fee, which is the same as the Guaranty Obligation previously reported for their VIEs, that is, Debt.
The management of Freddie Mac might have siphoned off income to Deferred Income over a series of years. Numerous quarters a few years ago, during the refinancing boon when the Deferred Income is amortized, Freddie Mac increased it, whereas the opposite in Fannie Mae.
It could explain the disproportionate amount of Deferred Income in the smaller Freddie Mac, in comparison to Fannie Mae ($42B vs $19B) that can't be explained just because Freddie Mac has grown faster.
2- Deferred Income is valuable income already collected (upfront g-fee or LLPAs) necessary to meet capital requirements, recorded as Debt instead.
Because this part is lawful, we don't have a legal claim, primarily because the income is still there, but, if the Accounting Standard is changed in order to amortize all the Deferred Income into earnings in one fell swoop (just by changing the name Upfront g-fee for Delivery fee), and there is a Takings or takeover before, we are entitled to a compensation for damages, because FnF have been prevented from recording this capital during the Transition Period to build capital, that would have fast-tracked the release from conservatorship and the resumption of dividend payments.
Deferred Income is one of the 3 rounds of Punitive Damages. Although the common shareholders waive this claim in the case of release "as is".
There have been 3 Accounting Standard changes during Conservatorship, that have resulted in a charge on the Common Equity or Book Value.
PS: the tweet cited shows the charges for Accounting Standard changes. The BVPS is an old figure.
