Posted on Thursday, February 11, 2010
On January 1, 2010, the GSE adopted new industry-wide accounting standards – FAS 166 and FAS 167 – which require lenders to account for certain securitized assets on their own books, rather than passing all the risk off to securities investors as has been the case in the past. It’s a move that regulators say will ensure lenders have a vested interest in ensuring the loans are well underwritten and borrowers are able to keep payments current.
Under these new accounting rules, the GSe's have determined it is more cost efficient to repurchase the delinquent loans and hold them in its portfolio than continue making guarantee payments to security holders when the losses showed up on the GSE’s own books as well.
This will affect the GSE positions, as well as lender and investor positions. And it just goes to show you how the game can change quickly and unexpectedly - winners become losers and losers become winners - when Uncle Sam is sitting that the poker table.