Fannie Mae agrees to increase surplus capital

Monday, September 27th 2004, 9:51 am
By: News On 6

WASHINGTON (Dow Jones/AP) _ Mortgage giant Fannie Mae Monday said it has agreed with its regulator to boost its capital reserves and to recalculate some transactions back through 2001.

The Office of Federal Housing Enterprise Oversight, or OFHEO, also required Fannie Mae's board to conduct a comprehensive review of the company's staffing, specifically citing a focus on the job of Chief Financial Officer Timothy Howard.

Neither Fannie Mae nor OFHEO's announcements specifically said the company was restating its financial results.

The company, however, agreed to recalculate its derivatives transactions from 2001 on. It also agreed to recalculate the way it estimated purchase premiums and discounts on certain securities and loans back to 1998.

It also gave Fannie Mae 270 days to raise its capital surplus to 30 percent. The company said it has about 18 percent in surplus capital on its books but did not give a precise dollar amount on what the agreement with OFHEO will require it to raise.

Fannie Mae held $35.7 billion in core capital as of March 31, giving it roughly 14 percent in surplus capital, according to OFHEO's most recent analysis.

To meet a target of 30 percent surplus capital, Fannie Mae would have to raise another $5.1 billion.

``The serious concerns raised in OFHEO's report require prompt action,'' OFHEO Director Armando Falcon said.

OFHEO is also is requiring the company to ask it for approval before increasing dividends or buying back stock.

OFHEO also reserved the right to approve the board's choice of an independent counsel and accounting firm to run its investigation.

On Wednesday, Fannie Mae said the OFHEO had uncovered accounting inaccuracies that raised doubts about the company's previous financial reports.