You can take Mr Potato Head out of the GSEs, but you can’t take the bogus accounting out so easily, it appears. From Fannie Mae’s recent 10K filing:

For example, we recently introduced a new HomeSaver Advance(tm) initiative, which is a loss mitigation tool that we began implementing in the first quarter of 2008. HomeSaver Advance provides qualified borrowers with an unsecured personal loan in an amount equal to all past due payments relating to their mortgage loan, allowing borrowers to cure their payment defaults under mortgage loans without requiring modification of their mortgage loans. By permitting qualified borrowers to cure their payment defaults without requiring that we purchase the loans from the MBS trusts in order to modify the loans, this loss mitigation tool may reduce the number of delinquent mortgage loans that we purchase from MBS trusts in the future and the fair value losses we record in connection with those purchases.

My translation: Rather than having to buy back and show a loss on a delinquent mortgage, we get the borrower to sign an unsecured personal note for the delinquent amount (which he owed anyway), make the payments for him, and call it square. This makes our credit losses seem much lower than they really are. Said unsecured personal note requires no payments or interest for the first six months, by the way, so there’s no way it can go delinquent for at least six months. And anything can happen in six months, right? Like we get our bonuses, eh?