- The Washington Times - Wednesday, May 2, 2007

ASSOCIATED PRESS

Fannie Mae, which finances one of every five home loans in the United States, reported yesterday its profit rose 26 percent in 2005, but expects to report lower earnings for 2006. It also named a new chief financial officer and raised its dividend.

The government-sponsored company is remaking itself as it recovers from a multibillion-dollar accounting scandal. The 2005 report was its first public reckoning of finances since it announced a restatement in December that erased $6.3 billion in previously reported profit for 2001-2004.

The company undertook a massive reworking of its accounting after the scandal became known in September 2004.

Fannie Mae said Stephen Swad, a former executive vice president and CFO of AOL, will succeed Robert Blakely as its CFO. The announcement indicated that Mr. Blakely, who came in to direct fix the accounting, has largely completed that task.

The company said it is also raising its quarterly dividend by 10 cents to 50 cents a share as of May 25.

Washington-based Fannie Mae said it earned $6.3 billion, or $6.01 a share, in 2005, up from $5 billion, or $4.94 a share, in 2004. Wall Street analysts had expected 2005 earnings of $5.80 a share.

Fannie Mae said 2005 was a strong year but that it expects 2006 profit to show a decline, mainly owing to reductions in interest income and ballooning costs from the restatement process. Volatility in earnings is expected to continue from quarter to quarter in response to changes in interest rates.

The company said that going forward, it expects its credit losses “will increase and serious delinquencies may trend upward” as a result of the slumping housing market.

Around the country, home-mortgage delinquencies and foreclosures have surged in recent months. Fannie Mae and Freddie Mac, its government-sponsored sibling in the $8 trillion home-mortgage market, recently committed to buy tens of billions of dollars of high-interest mortgages so that lenders can help strapped borrowers refinance and avoid foreclosure.

Fannie Mae estimates that about 1.5 million homeowners could be eligible under its plan. The companies are particularly targeting borrowers with so-called subprime mortgages, higher-priced loans for people with tarnished credit or low incomes who are considered greater risks.

Costs related to the reworking of the accounting, legal expenses for lawsuits brought by shareholders and upgrading the company’s internal financial controls climbed to an estimated $3.1 billion last year, Fannie Mae said yesterday.

Besides cost-cutting measures aimed at trimming operating expenses by $200 million this year compared with 2006, the company also plans to cut its 6,500-member work force by several hundred employees by year’s end. Also, Fannie Mae is withholding $44.4 million in bonus money tied to company earnings targets from 46 current and former senior executives, and eliminating some perks for its executives.

Fannie Mae and Freddie Mac were created by Congress to pump money into the home-mortgage market. The idea was to keep interest rates low and make homeownership affordable for low- and moderate-income people. Freddie Mac has been recovering from its own accounting scandal, which surfaced in mid-2003.

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