In its Feb. 23 release, government-sponsored Fannie said that OFHEO has identified additional accounting policies that may not be in compliance with generally accepted accounting principles, or GAAP. In the list of additional policies, Fannie mentioned FIN 46, a relatively new accounting rule that governs how companies treat special entities set up to hold assets off balance sheet. The rule is designed to keep companies from setting up entities to wrongfully shift assets and liabilities off their books. A company may want to do this to avoid booking losses, to hold less capital or to shield its financial results from volatility. FIN 46 came out mainly in response to abuses by Enron, which improperly shifted losses from its balance sheet with dubious "special purpose entities." FANNIETOX How might Fannie have misapplied this rule? Fannie buys billions of dollars of residential mortgages each year and then does one of two things with them. It keeps a large portion on its balance sheet and earns interest from them. The others it bundles up into bonds called mortgage-backed securities. Fannie guarantees the mortgages in these MBS deals. To issue MBS, Fannie uses so-called qualified special purpose entities, or QSPEs. As of Jan. 31 there were a massive $1.42 trillion of mortgages in these off-balance-sheet pools of guaranteed assets.