WASHINGTON, DC-Fannie Mae and Freddie Mac may be revising their accounting methodologies for estimated loan charge offs if the Inspector General of the Federal Housing Finance Agency has its way. In a new report issued earlier this month, the IG called on the GSEs to move faster in implementing an accounting change that would require the GSEs to charge off losses on loans on which borrowers have not made payments for 180 days.

The advisory bulletin calling for the changed accounting processes was issued in April 2012, Edward J. DeMarco, acting director of the IG noted in the report—but the FHFA gave the GSEs until 2015 to fully implement the changes. He is recommending that FHFA require the GSEs to "promptly report" to FHFA and OIG the estimated impact on their financial statements as if the advisory bulletin took effect immediately and continue to provide such reports on a regular basis.

That first advisory bulletin required both single family and multifamily loans to comply with the new rules.

Like with single-family loans, those multifamily real estate loans that are current will not be adversely classified.

To determine the appropriate adverse classification for multifamily loans, according to the advisory, examiners will evaluate the prospects that the loan will be repaid in the normal course of business considering all relevant information. "This includes information on the borrower's creditworthiness and payment record, the nature and degree of protection provided by the cash flow and value of the underlying collateral, and any support provided by financially responsible guarantors."

A performing multifamily real estate loan should not automatically be adversely classified or charged off just because the value of the underlying collateral has declined to less than the loan balance, the advisory said. "Similarly, loans to sound borrowers that are refinanced or renewed in accordance with prudent underwriting standards and have not been formally restructured due to troubled condition should not be adversely classified unless well-defined weaknesses exist that jeopardize repayment in the normal course of business," it said.

The advisory then explains under what conditions it would be appropriate to adversely classify a performing loan—namely, when well-defined weaknesses exist that jeopardize repayment, such as the lack of credible support from reliable sources.

In some cases, if these weaknesses are present -- even if the loan is not seriously delinquent (90 days or more) -- that loan should be classified as Substandard, the advisory said.

In addition, "for a multifamily loan where there are no available and reliable sources of repayment other than the sale of the underlying real estate collateral, any portion of the loan balance that exceeds the amount secured by the fair value of the collateral, less cost to sell, and that is considered to be uncollectible, should be classified Loss and charged off."

The portion of the loan balance that is adequately secured by the value of the collateral, less cost to sell, should generally be classified no worse than Substandard, it said, and the amount of the loan balance in excess of the value of the collateral should be classified Doubtful only when the potential for loss may be mitigated by the outcome of certain near-term (generally, within 90 days) pending events, or when loss is expected but the amount of the loss cannot be reasonable determined.