- The Washington Times - Wednesday, October 29, 2003

ASSOCIATED PRESS

Fannie Mae disclosed a $1.2 billion accounting error yesterday for the third quarter, a mistake a federal regulator said shows the need for close government scrutiny of the mortgage-market giant.

The error, which Fannie Mae said occurred because of a change in accounting rules, does not affect the company’s net income. It resulted in increases to unrealized gains on securities, accumulated other comprehensive income and total stockholders’ equity, government-sponsored Fannie Mae said.

“This error underscores the need for the special review OFHEO is about to begin of accounting policies, practices and internal controls at Fannie Mae,” said Armando Falcon Jr., the director of the Office of Federal Housing Enterprise Oversight.

The disclosure follows accounting and management turmoil at smaller rival Freddie Mac and financial problems at the Federal Home Loan Banks in New York, Atlanta and Pittsburgh.

The irregularities have roiled financial markets and prompted investigations of Freddie Mac — which underreported 2000-02 earnings by at least $4.5 billion — by the Justice Department and Securities and Exchange Commission.

The problems have also called into question the privileges afforded Fannie Mae, Freddie Mac and the Federal Home Loan Banks as government-sponsored enterprises. Fannie Mae and Freddie Mac stock is widely traded.

Shares in Fannie Mae fell $1.80 to close at $73.10 on the New York Stock Exchange.

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