US mortgage groups 'created a house of cards'

Fannie Mae and Freddie Mac used accounting rules that created a "house of cards" as the housing market descended into its worst slump since the Great Depression.

While the two largest mortgage-finance companies met regulatory requirements for their capital, reviews by the Treasury, the Federal Housing Finance Agency, and the Federal Reserve found they probably wouldn't weather the highest delinquency rates on record, lawmakers and regulators said.

"Once they got someone looking closely at Fannie and Freddie's books, they realized there just wasn't adequate capital there," US Senator Richard Shelby of Alabama, the ranking Republican on the Senate Banking Committee, said after a briefing by Treasury officials. "They found out they had a house of cards."