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Fannie Mae Discloses Additional Accounting Errors

November 11, 2005|From Associated Press

WASHINGTON — Mortgage giant Fannie Mae, struggling to untangle its accounting in an $11-billion scandal, disclosed Thursday that new errors had been uncovered.

The government-sponsored company, which finances 1 in 5 home mortgage loans in the U.S., also hired a new finance chief and named a new chief operating officer as it again missed a regulatory deadline for filing a financial report -- this time for the third quarter. Fannie Mae hasn't filed an earnings report since late last year.

The new chief financial officer, Robert Blakely, is executive vice president and CFO of MCI Inc., which emerged from bankruptcy protection after a multibillion-dollar accounting scandal at the former WorldCom Inc.

In a filing with the Securities and Exchange Commission, which has ordered the company to restate earnings back to 2001, Fannie Mae affirmed previous estimates that the correction would total about $11 billion. The company said it probably would not complete the reworking of its accounting before the second half of next year.

Fannie Mae also disclosed new accounting problems that had been uncovered in several areas, including recorded losses on mortgages and the mortgage-backed securities it guarantees as well as expenses for financing some real estate investments and accounting for low-income housing tax credits and mortgage insurance. The company did not provide an estimate of the error amounts.

They are in addition to the accounting-rule violations that came to light last year involving derivatives -- the financial instruments Fannie Mae uses to hedge against swings in interest rates -- and its mortgage commitments. Those problems prompted federal regulators in September 2004 to accuse Washington-based Fannie Mae of serious accounting problems and earnings manipulation to meet Wall Street targets.

The SEC is investigating the company's accounting and the Justice Department is pursuing a criminal investigation.

Additional problems are expected to come to light in the investigations by the SEC and other federal regulators and in Fannie Mae's own review that has continued for more than a year, company Chief Executive Daniel Mudd said Thursday.

"This is not an easy road to take," said Mudd, who was installed by Fannie Mae's board last December to replace ousted CEO Franklin Raines.

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