The quasi governmental mortgage company Freddie Mac (OB: FMCC) and its big sister Fannie Mae (OB: FNMA) have been under intense Federal scrutiny since handing over full control to the government in September 2008.  The SEC has been looking closely at their accounting practices searching for evidence of corporate fraud.  Now things are heating up on Freddie Mac in a big way.

Yesterday, Executive Vice President Don Bisenius was served with a notice from the SEC that the agency may be filing an enforcement action against him for running afoul of securities laws in 2007 and 2008.   Perhaps in a potentially ill fated effort to mitigate future damages, big sister Fannie Mae said in another filing on Thursday, “Management has determined that, as of the date of this filing, we have ineffective disclosure controls and procedures and a material weakness in our internal control over financial reporting.”  WOW!  Talk about the kiss of death to an already dying entity.  It’s kinda like a kid in second grade deciding to turn themselves in with hopes that the school authorities will go easy on him.  I don’t believe things work that way with the SEC.  Remember Bernie Madoff?  Didn’t he turn himself in?   Enough said.

The above isn’t mentioning that Freddie Mac reported its sixth-straight quarterly loss while requesting another $500 million from the Feds.  In addition, Fannie Mae needs another $2.6 billion but added it will pay close to that amount back to tax payers.  Under the original Federal takeover terms, Fannie and Freddie must pay back 10% as a dividend payment on the government aid.

Bottom line is things are not looking peachy for Fannie Mae.  What was suppose to be a short term band aid of Federal help may turn into a long term restructuring plan or a complete elimination of the company.

Technically, things have been holding up surprisingly well despite the most recent bombshell of actions against executives.  The 200 and 50-day moving averages have acted as support and are close to a potential bullish crossover.  $1.00 looks like solid resistance with $0.47 per share providing support.

While risk taking traders may want to take a risk with Fannie, it’s simply too dangerous for my tastes.   Good Trading!

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