By Alison Rice. After a week of revelations about management changes and accounting practices at Freddie Mac, the country's second-largest buyer of mortgage loans, two questions loomed: Was the housing market going to deflate like a bubble popped by the pin of Freddie Mac's troubles? Was Freddie Mac's firing of its president for giving incomplete and altered journals to an internal audit committee the start of a new Enron?

Experts say no. "I feel very safe in saying that I do not believe this will bring about the collapse of the housing market or Freddie Mac," says Kent Colton, author of Housing in the 21st Century: Achieving Common Ground. "This is a management question and an auditing question that needs to be worked through, but it is not a question about the long-term future of Freddie Mac or the secondary market." Those questions emerged June 9, when Freddie said it had fired president David Glenn. Chairman and CEO Leland Brendsel was also out--asked to retire, according to later reports--as was CFO Vaughn Clark, replaced by a team led by new CEO and president Gregory Parseghian.

The shake-up stemmed from a reaudit of Freddie Mac's 2000, 2001, and 2002 books, which began in January when the McLean, Va.-based mortgage giant switched auditors, from Arthur Andersen to PricewaterhouseCoopers. At issue is how Freddie should handle derivatives--financial instruments it uses to protect itself, or hedge, against interest rate fluctuations on mortgage loans in its portfolios. Like stock options, there are several ways to treat derivatives. Fannie Mae uses one method, assigning fair market value to them quarterly, but Freddie had been using two approaches. It treated part of its portfolio the same as Fannie, but handled the other differently, using a cash flow method with which its new auditor disagreed. "This whole issue came about because of the reaudit and the reinterpretation of the Financial Accounting Standard Board's hedging rules," says Paul Miller, a managing director at Friedman, Billings, and Ramsey. He says Freddie is no Enron. "The big issue with other companies is that they were manufacturing earnings. Freddie's economic earnings are intact."

Still, Freddie is now under investigation by the federal government, the SEC, and its own regulator. Congress has called for hearings; critics are demanding more oversight. That's what worries Colton. "I think the biggest risk for the housing industry is that people will overreact ... and add regulations that will make the mortgage market less efficient and add cost for the home buyer."