- The Washington Times - Tuesday, May 30, 2006


Mortgage finance giant Freddie Mac, emerging from an accounting scandal, reported yesterday that its income slid to $2.1 billion last year from $2.9 billion in 2004 as it paid to settle a suit by shareholders and took charges related to Hurricane Katrina.

The government-sponsored company, which is the second-largest buyer and guarantor of home mortgages in the country, said that the $600 million or so of costs that it incurred also stemmed from accounting changes. Earnings per share were $2.75, down from $3.94 in 2004.

Freddie Mac previously had planned to report its 2005 results in March, but needed more time to institute a new method of valuing some assets.

Fourth-quarter earnings last year at McLean-based Freddie Mac were $684 million, up from $377 million a year earlier, according to Tuesday’s report.

Last year saw “continued investment in the business capabilities, infrastructure and management team here at Freddie Mac,” Eugene McQuade, the company’s president and chief operating officer, said in a statement. “These investments position our company to achieve our long-term growth and return objectives, and to deliver long-term value to the market and our stockholders.”

The company said its bottom line was reduced by about $220 million that it paid to settle litigation by shareholders related to its faulty accounting for 2000 through 2002, by $133 million for Hurricane Katrina and by $265 caused by accounting changes.

The loss for the hurricane stems from Freddie Mac’s guarantees of timely principal and interest payments on home loans and from its investment holdings of securities that are tied to mortgages in the affected Gulf Coast areas.

Freddie Mac and Fannie Mae suspended for several months foreclosures on homes in the hurricane disaster areas for mortgages that they own.

Earlier this year, Freddie Mac’s chief financial officer, Martin Baumann, unexpectedly resigned from his post.

Mr. McQuade has been acting as CFO while the company searches for a successor.

An accounting crisis in mid-2003, when Freddie Mac disclosed that it had misstated earnings by about $5 billion — mostly underreported — for 2000 through 2002, brought the ouster of its top executives.

The company paid a then-record $125 million civil fine in 2003 in a settlement with federal regulators, who blamed management misconduct for the faulty accounting.

That penalty was exceeded May 23 when Fannie Mae was fined $400 million and agreed to limit its growth in a settlement with regulators.

A blistering report issued by the Office of Federal Housing Enterprise Oversight reported accounting manipulation by Fannie Mae aimed at lining executives’ pockets and lying to investors about smooth growth in profits and earnings.

The developments came as Washington-based Fannie Mae, which has not filed an earnings statement since late 2004, corrects its accounting back to 2001 and struggles to emerge from an $11 billion scandal.

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