FM Watch, the coalition of major lenders and mortgage insurers formed to confine Fannie Mae and Freddie Mac to the secondary mortgage market, said Freddie Mac's second-quarter earnings included a $1 billion writedown that could prove harmful for taxpayers. The coalition said the $1 billion reduction by Freddie in the value of its asset-backed securities available for sale "reduced their shareholders' equity by 3% in just three months." "This is not a financial loss in any way," said Bill Stephens, vice president for shareholder relations at Freddie Mac. "When we buy any security, we hedge the security" using debt, he said. Mr. Stephens said this is an accounting issue resulting from $1 billion of securities that underwent a "mark-to-market change in the value of the assets." Wall Street analysts agreed that it is an accounting issue. "Securities held for sale are marked to market, but the debt which funds these securities is not," said Jonathan E. Gray, an analyst at Sanford C. Bernstein & Co.