- The Washington Times - Wednesday, December 15, 2004


An official of the Securities and Exchange Commission said yesterday a review had found that Fannie Mae had violated accounting rules and that he had told the mortgage giant to restate its earnings.

SEC Chief Accountant Donald Nicolaisen said the government-sponsored company’s accounting for 2001 through mid-2004 “did not comply in material respects” with accounting rules for derivatives, financial instruments used to hedge against interest-rate swings.

The SEC has been investigating the accounting of District-based Fannie Mae, which finances one of every five home loans in the United States. Fannie Mae said last month that if the agency found that it had improperly accounted for derivatives, it would show an estimated net loss of $9 billion for the third quarter of this year.

Fannie Mae spokeswoman Janice Daue had no immediate comment last night after Mr. Nicolaisen’s statement was released.

In September, regulators in the Office of Federal Housing Enterprise Oversight cited Fannie Mae for serious accounting problems and accused the company of earnings manipulation. The regulators had ordered Fannie Mae to complete massive recalculations, and the delay fueled speculation as to whether the company would restate earnings.

Chief Executive Officer Franklin Raines and Chief Financial Officer Timothy Howard defended the company’s accounting in sworn testimony at a congressional hearing in October and rejected the regulators’ charges of accounting improprieties and management misdeeds going back to the late 1990s.

Fannie Mae last month missed an SEC deadline for filing its third-quarter financial results after its independent auditor KPMG refused to sign off on the report. The company also acknowledged that some of its accounting practices don’t comply with generally accepted accounting principles.

A restatement could lead Fannie Mae’s board to shuffle the company’s executive ranks.

Fannie Mae and its smaller sibling, Freddie Mac, pump money into the home mortgage market by buying and guaranteeing repayment of billions of dollars of home loans each year from banks and other lenders, then bundling them into securities that are resold to investors. Their stock and debt are widely held by investors worldwide.



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