Hedging: Fall of Enron Puts New Focus on Your Balance Sheets.(Brief Article)

What impact will the largest bankruptcy in U.S. history have on the mortgage industry?

Not much, at first glance. Enron is an energy trading firm that has nothing to do with real estate finance. Enron's fall would seem to have few logical ramifications for the mortgage industry, though former chairman and CEO Kenneth Lay, owner of some $30 million in residential real estate, according to the Wall Street Journal, may find himself slipping out of the 'A' credit class into the rank of B&C borrowers.

But the truth of the matter is, the fall of Enron will have ramifications for every corporation in America, especially those with complex balance sheets. And mortgage servicers know that their balance sheets are not always easy to explain.

Expect more scrutiny from your outside accountants, as well as from shareholders and analysts.

In mid-February, the stock market briefly swooned as an "accounting discount" swept through the market. Shareholders dumped shares of companies they could not understand or which came under suspicion of accounting "irregularities."

Jonathan Gray, senior research analyst at Sanford C. Bernstein & Co., says that today, disclosure from the mortgage industry is uneven, and that analysts find it difficult to augment the information that companies do choose to disclose publicly.

"I think disclosure should be improved, and I think the current concern about disclosure provides some stimulus for that to take place," he said, urging management to take a "fresh look at their investor relations function" as well as disclosure practices.