With the word "derivatives" recently getting a lot of bad press, Fannie Mae's and Freddie Mac's use of these instruments have come under increased scrutiny not only by the different trade groups who have long established crusades against the two agencies but also by their regulators.

The Office of Federal Housing Enterprise Oversight (OFHEO), safety and soundness regulator for Fannie Mae and Freddie Mac, recently announced it has formed a Working Group on Derivatives to monitor the GSEs' derivative activities, said sources at OFHEO.

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