The SEC, of course, is empowered to provide guidance on U.S. generally accepted accounting principles; indeed, is the agency that endows FASB with the authority to set GAAP.

But FASB's role has been a curious one. Hewitt's letter cites the views of "the participants at a June 22, 2007 Financial Accounting Standards Board educational forum." Yet that forum was hosted by FASB at the SEC's request and, according to FASB chairman Herz, was attended by only "two or three" of the seven FASB board members.

Herz told CFO.com at the time the plan was unveiled that FASB will "look at [the plan] if someone asks us." That now appears to have happened. Indeed, the SEC has essentially ordered FASB to conclude its various FAS 140 projects by the end of the year. By then, however, most of the mortgages in question will already have been modified. The question then will be how FASB, which has already gone through a mighty struggle to address Enron-style abuses of special-purpose entities without threatening securitization, will reconcile accounting standards with this latest reinterpretation.

Indeed, this is not the first time political considerations have affected accounting policy — nor is it the first time that FASB's efforts to define securitization accounting have run afoul of the banking lobby. Indeed, the board's stricter interpretation of FAS 140, known as FIN 46, ran into opposition from banks in 2002 precisely because it threatened to put securitized assets back on their balance sheets. As Herz told CFO magazine shortly afterward, the SEC supported the immediate rollout of that rule, but the Federal Reserve demanded a delay, which allowed banks time to restructure.

FAS 140 also is not the only standard now under fire because of the mortgage crisis. On the same day Hewitt issued his letter, the Mortgage Bankers Association wrote to FASB seeking accounting flexibility in the face of the crisis. In a letter to Herz, Alison B. Utermohlen, the MBA's senior director of government affairs, asked that banks be allowed to use FAS 5, known as Accounting for Contingencies, rather than FAS 114, Accounting by Creditors for Impairment of a Loan, when accounting for defaulting mortgages.

"Unfortunately no one at that time [that FAS 114 was drafted], the MBA included, could have foreseen a day in which thousands of loans that are in default (or in reasonably foreseeable default) might be modified within the same reporting periods," wrote Utermohlen."

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