Whither Fannie Mae? What are the potential impacts of its current problems on home buyers, Realtors and lenders?

Here's a quick, handy guide to Fannie Mae's woes, just in case you're having trouble translating last week's headlines into practical terms for yourself or clients.

Why is Fannie Mae suddenly in such hot water with the federal government and the stock market?

It's called cooking the books. Fannie Mae, the largest funding source for U.S. home mortgages, stands accused of manipulating its accounting in order to meet certain earnings targets that affect its stock price. Some of its top officials stand accused of doing so in order to maximize bonuses added to their salaries.

Fannie's federal regulator, the Office of Federal Housing Enterprise Oversight (OFHEO), charged Fannie with "cookie-jar reserving" and other tricks that violate generally-accepted accounting principles. The Securities and Exchange Commission is investigating Fannie for the same reasons, and the Justice Department reportedly has begun an investigation of possible criminal activities at Fannie. The company's top leaders, including Franklin Raines, face what is likely to be a scathingly critical Capitol Hill hearing this Wednesday. Fannie is also being sued by some of its own disgruntled stockholders, who have seen their stock values shrivel because of the alleged accounting shenanigans.

Wow, that sounds bad for Fannie. What side impacts might there be on American home buyers and refinancers whose loans are purchased -- and essentially funded -- by Fannie Mae?

Definitive answers to that question won't be known for months at the earliest, after the investigations have come to some conclusion. Fannie already has agreed to raise its capital levels significantly -- by 30 percent over current minimum requirements -- and may have to restate its earnings for the past couple of years. But the good news for the home real estate field is that will not necessarily reduce the corporation's ability to buy new home loans. The most likely scenario is that Fannie will be reined in, fined, and subjected to much tougher regulatory oversight in the future. A few highly-compensated corporate heads may roll, but there should be few noticeable effects on consumers, Realtors or lenders. Mortgage market interest rates are not set by Fannie or Freddie Mac, the other big home loan investor. In fact, a Federal Reserve Board staff study last December concluded that Fannie's and Freddie's combined impact on mortgage rates is far less than generally believed -- roughly a 7 basis point (0.07) lowering of the rates that would otherwise be paid by home buyers. (Both corporations say they do better than that, lowering effective mortgage rates by as much as half a percentage point.)

What about the "P-word" -- privatization? Could Fannie be privatized, cutting its congressionally-chartered ties to the federal treasury and its implicit backing by the federal government? What effects might that have?

Although unthinkable just a couple of years ago, Federal Reserve Board chairman Alan Greenspan believes that an eventual de-coupling of Fannie and Freddie from their ties to the U.S. Treasury would be a healthy development, given the huge potential risk the companies pose to taxpayers in the event of a financial failure. There is also the chance that at some point in the future, stockholders and directors of publicly-traded Fannie and Freddie might find the pains of heavy-handed federal regulatory oversight too unpleasant to endure, and opt for privatization voluntarily. But the fact is: Privatization is nowhere in sight at the moment. If it occurred, however, the side effects on the real estate industry could be profound. Unhitched from federally-mandated housing targets and restrictions on business activities, Fannie and Freddie could be the proverbial 1,000-lb gorillas in the real estate forest, theoretically free to do whatever they wanted -- including building and selling homes, direct mortgage lending, servicing mortgages, dominating mortgage technology and information, realty brokerage, or other key lines of business they're currently prohibited from entering.

Proponents of privatization might rue the day they cut Fannie's federal ties. They might end with Pandora's box.