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Fannie Mae May See '04 Losses Jump

March 18, 2005|From Reuters

Fannie Mae said Thursday that it would have to record $2.4 billion in additional losses for 2004 if the company's accounting for its mortgage commitments as derivatives is not allowed.

The mortgage finance company would have had to record a $2.8-billion loss through June 30, 2004, if it did not qualify for such accounting treatment, the company said in a filing with the Securities and Exchange Commission.

That would come on top of the approximately $9 billion in losses related to derivatives that Fannie Mae said it would have to record based on accounting problems raised earlier.

The announcement coincided with revelations that company employees allegedly falsified signatures on accounting ledgers and made changes to earnings-related records without following proper procedures, driving Fannie's stock down more than 4%.

"We have found instances of falsifying signatures on accounting ledgers and making changes to database records," an official from the Office of Federal Housing Enterprise Oversight, Fannie's regulator, said, speaking on condition of anonymity.

Fannie's stock dropped $2.45 to close at $54.50 on the New York Stock Exchange. It hit an intraday low of $53.88, its lowest level since September 2000.

Fannie Mae declined to comment on the regulator's statement that employees had falsified signatures.

Investigations by OFHEO and the SEC continue into Fannie's accounting problems, which led to the ousting of top executives last year.

Fannie Mae will not file its annual financial report on time with securities regulators, the company also said Thursday.

Fannie's accounting problems are unfolding as Congress considers tougher oversight of the company and its housing enterprise sibling, Freddie Mac.

Republicans in the House and Senate have said they will consider legislation to create a stronger regulator with the power to shut down the government-sponsored housing enterprises in the event of insolvency.

The companies carry congressional charters and are charged with ensuring a liquid mortgage market.

A bill could be offered in the House as early as today, sources said.

Fannie Mae and Freddie Mac buy mortgages from originators and package them as mortgage-backed securities. They also keep mortgages in their portfolios as whole loans or securities. In 2003, government-sponsored housing enterprises accounted for 47.2% of all residential mortgage debt outstanding, their regulator said.

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