Fannie Mae Finds New Accounting Errors

WASHINGTON (AP) _ Embattled mortgage giant Fannie Mae disclosed Monday that it had found additional errors in the reworking of its accounting ordered by federal regulators. <br/><br/>The government-sponsored

Monday, March 13th 2006, 10:46 am

By: News On 6

WASHINGTON (AP) _ Embattled mortgage giant Fannie Mae disclosed Monday that it had found additional errors in the reworking of its accounting ordered by federal regulators.

The government-sponsored company, which finances one of every five home loans in the United States, said it had made ``substantial progress'' toward completing its accounting review but expects to miss a regulatory deadline for filing its annual financial report for the second straight year. The deadline for the filing is Thursday.

Fannie Mae also said that it expects an upcoming internal report to show that the company's financial controls remained deficient as recently as the end of last year.

Federal regulators in 2004 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 _ a correction expected to reach an estimated $11 billion. The Justice Department is pursuing a criminal investigation.

The company does not expect to complete the reworking until the second half of this year. Fannie Mae said in its SEC filing Monday that it has completed ``the process of identifying accounting issues for review.''

``Although our review of accounting policies and practices is not complete, we have made significant progress in completing our analysis and determination with respect to the accounting issues we have identified,'' Fannie Mae President and CEO Daniel Mudd said in a statement.

The company said the newly disclosed accounting errors are in areas including certain loans, investment securities, guaranty fees charged to banks and other mortgage lenders, and reverse mortgages. Fannie Mae did not provide an estimate of the amounts of the errors.

Similarly, Fannie Mae in November disclosed new accounting problems that had been uncovered in several areas, including recording 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.

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.

A company-ordered report released last month detailed a breakdown in financial controls and found an arrogant corporate culture at Washington-based Fannie Mae. The report, which followed a 17-month investigation by a team led by former Sen. Warren Rudman, said that Fannie Mae's former finance chief and controller share primary responsibility for the accounting failures.

Fannie Mae and Freddie Mac, its smaller rival, were created by Congress to pump money into the $8 trillion home-mortgage market. They buy and guarantee repayment of billions of dollars of home loans each year from banks and other lenders, then bundle them into securities that are resold to investors worldwide.

Freddie Mac, which had its own accounting scandal in 2003, said Friday that it will report its financial results for 2005 in May rather than March, as previously planned, because it needs more time to institute a new method of valuing some assets.