Several firms are out defending Fannie (NYSE:FNM) and Freddie (NYSE:FRE):

- Piper Jaffray notes there has been much discussion over the past few weeks about the effects of the FASB vote to potentially remove a QSPE concept from FAS 140.

In plain English, the FASB is looking to add visibility to off-balance-sheet assets, especially in the face of huge charges and capital requirements resulting from off-balance sheet assets at some of the large banks such as Citigroup.

Based on a competitors' report outlining worst case results for FNM/FRE, on this topic, those stocks sold off by around 17% yesterday.

Piper had a discussion with a senior partner at a Big 4 accounting firm and with some industry senior executives that have been embroiled in conversations with FASB and regulators, and one thing is clear: they don't know the end result. However, with regard to the credit card assets and the GSEs, it sounds to us like they are not the target of the accounting changes. Despite that, for GAAP accounting purposes, they may have to add those assets to the balance sheet

Firm doubts, especially in the midst of a credit crunch, that regulators or Congress would allow a massive imminent increase in the capital required by those businesses. A worst-case scenario for the GSEs, taking an asset that requires 45 bps of capital and forcing an increase to 250 bps of capital, would be a massive cost increase for the mortgage industry driving large increases in interest rates to consumers. They doubt that is acceptable.

They remain very cautious on the most credit sensitive names and need to feel more comfortable about the outlook for credit to get more optimistic. However, the firm believes the reason for the sell-off yesterday was likely not justified.

- Keefe Bruyette notes that FNM and FRE have both suffered significant share price declines based on possible FASB interpretations for off-balance-sheet treatment of securitizations. The firm believes this sell-off is unwarranted on this issue as the GSE regulations already have capital requirements for off-balance-sheet exposures of the two companies.

Notablecalls: The media is approaching this issue in a way less aggressive way I expected this morning. With several defenses, I suspect we will see at least an early bounce in the names. My fave is FNM of the two. Give the shorts a run for their money.