(MONEY Magazine) – Is Fannie Mae (FNM) this year's Enron? The Office of Federal Housing Enterprise Oversight (OFHEO) recently released a report extremely critical of the mortgage giant's accounting, alleging that it smoothed its financial results in order to make earnings appear less volatile. (Fannie greases the wheels of housing finance by buying mortgages from banks.) The most troubling of Fannie's alleged sins was a move in 1998 to defer $200 million in expenses to meet earnings targets—triggering rich bonuses for Fannie execs.

We recommended the stock at $71. The new allegations have helped push the price down to $65. Can it get worse? Prudential Securities analyst Chuck Gabriel thinks OFHEO would have found similar misdeeds had it investigated the pre-Enron accounting of many big financial companies. "There's no shock value to anything in this report," says Gabriel.

Even so, the report has already had an impact on Fannie's business. It recently agreed with OFHEO to put stricter limits on how much debt it can carry. That's a hardship, since Fannie's profitable mortgage portfolio is financed with borrowed money.

Now let's talk worst-case scenario. Fannie, whose CEO, Franklin Raines, is a prominent Democrat, relies on loose government ties to borrow at extremely low rates. Many Republicans object to this, and now the company is politically vulnerable. If it lost some of that special treatment, its business model would be in trouble.

But Fannie is such a key part of the U.S. financial system that it would be awfully hard—and dangerous—for legislators to kill. The odds are that Fannie gets past this, so current investors who can stomach the volatility may prefer to sit tight. But even with the stock down to just eight times earnings, we aren't prepared to call this a buying opportunity until the picture clears. —JON BIRGER