Fannie Mae says it believes last of accounting errors have been found
WASHINGTON – Fannie Mae said Wednesday it believes a massive review of its accounting has uncovered all of the errors, clearing the way for the mortgage company to complete the restatement of its 2004 earnings by the end of this year. The company disclosed that the multibillion-dollar correction could be less than estimated previously.The government-sponsored company, which finances one of every five home loans in the United States, also said it would miss a regulatory deadline Wednesday for filing its financial report for the second quarter of 2006. Fannie Mae hasn’t filed an earnings statement since late 2004.Federal regulators that year accused Fannie Mae of serious accounting problems and earnings manipulation to meet Wall Street targets, and the Securities and Exchange Commission ordered the company to restate earnings back to 2001. The Justice Department has been pursuing a criminal investigation, which the company confirmed Wednesday “remains open.”The anticipated correction of earnings has been estimated at around $10.8 billion. But Fannie Mae indicated Wednesday that the final amount could be lower, because some losses will be less than previously thought.The company also has said it expects an upcoming internal report to show that its financial controls remained insufficient as recently as the end of last year.”We are committed to devoting all resources necessary to complete the restatement as expeditiously as possible,” Fannie Mae said in its filing Wednesday with the SEC. “However, because many of the activities are sequential in nature, accelerating the completion of the restatement is difficult.”The company said it believes that at this point “we have identified all errors requiring restatement.”Fannie Mae also said its 2004 losses related to accounting for mortgage commitments will be “significantly smaller” than its previous estimate of $2.4 billion, though it could not specify by what amount.Fannie Mae said the newly disclosed accounting errors involve its so-called master servicing arrangements with the trusts it creates to issue securities backed by the billions of dollars of home mortgages annually that it buys from lenders and bundles together for resale to investors worldwide.In May, the company disclosed new accounting problems that had been uncovered in that business of issuing securities and in the guaranty fees it charges the banks and other lenders.Similarly, Fannie Mae in March disclosed new accounting problems that had been uncovered in several areas, including loans, investment securities, houses acquired through foreclosures, interest on delinquent home loans, and reverse mortgages.They all are in addition to the accounting-rule violations that came to light in September 2004 involving derivatives, the financial instruments Fannie Mae uses to hedge against swings in interest rates, and its mortgage commitments.The federal agency that regulates Fannie Mae and its smaller government-sponsored sibling, Freddie Mac, issued a blistering report in May alleging a six-year accounting fraud at Washington-based Fannie Mae, the second-largest U.S. financial institution after Citigroup Inc.The report said Fannie Mae employees manipulated accounting to hit company quarterly earnings targets so senior executives could pocket hundreds of millions in bonuses from 1998 to 2004. The company was fined $400 million in a settlement with the Office of Federal Housing Enterprise Oversight and the SEC, one of the largest civil penalties ever in an accounting fraud case.Fannie Mae also agreed to temporarily cap its mortgage holdings at $727 billion. The company said in its filing Wednesday that it may request a rise in that ceiling early next year.Fannie Mae and Freddie Mac were created by Congress to pump money into the $8 trillion home-mortgage market to keep interest rates low and make home ownership affordable for low- and moderate-income people. Freddie Mac has been emerging from its own accounting scandal, which occurred in mid-2003.–On the Net:Fannie Mae: http://www.fanniemae.comFreddie Mac: http://www.freddiemac.comSecurities and Exchange Commission: http://www.sec.gov
Support Local Journalism
Start a dialogue, stay on topic and be civil.
If you don't follow the rules, your comment may be deleted.
User Legend: Moderator Trusted User