Skip to comments.Fannie Mae Discloses New Accounting Errors
Posted on 11/10/2005 8:26:36 AM PST by AdamSelene235
WASHINGTON (AP) -- Embattled mortgage giant Fannie Mae said Thursday that it has hired the chief financial officer of MCI Inc. to help it "rebuild and renew," as it disclosed new accounting errors and confirmed it will have to restate earnings by some $11 billion. Its shares fell more than 2 percent.
The government-sponsored company, which finances one of every five home mortgage loans in the United States, also named a new chief operating officer as it again missed a regulatory deadline for filing a financial report -- this time for the third quarter.
In a filing with the Securities and Exchange Commission, which has ordered the company to restate earnings back to 2001, Fannie Mae affirmed previous estimates that the correction will total about $11 billion. The company said it likely will not complete the reworking of its accounting before the second half of next year.
In the filing, Fannie Mae also disclosed new accounting problems 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. The company did not provide an estimate of the amounts of the errors.
Federal regulators in September 2004 accused Fannie Mae of serious accounting problems and earnings manipulation to meet Wall Street targets. The SEC is investigating the company's accounting and the Justice Department is pursuing a criminal investigation.
Additional problems are expected to come to light in the investigation by the SEC and other federal regulators and in Fannie Mae's own review that has been ongoing for more than a year, company Chief Executive Daniel Mudd said Thursday in a conference call with analysts. "This is not an easy road to take," said Mudd, who was installed by Fannie Mae's board last December to replace ousted CEO Franklin Raines.
The company has been engaged in discussions concerning its restatement with the staff of the New York Stock Exchange, which has the authority to strip a stock from trading when a company fails to file its annual report on time. The stock exchange also may continue to list the stock of a company in that situation, at its discretion.
The NYSE could if it wished delist Fannie Mae's stock by year's end.
Fannie Mae also announced Thursday that Robert T. Blakely will join the company as chief financial officer following the completion of MCI's acquisition by Verizon Communications Inc. Blakely was finance chief at MCI when that company emerged from bankruptcy following a multibillion-dollar accounting scandal at the former WorldCom.
The Verizon-MCI deal is expected to close later this year or early in 2006.
In addition, Fannie Mae named Michael Williams, currently executive vice president for regulatory agreements and restatement, as its new chief operating officer. Robert Levin was named to the new position of chief business officer, overseeing a number of operations including housing and community development. Levin has been the interim chief financial officer since December of last year.
Companies that miss SEC quarterly and annual filing deadlines are technically in violation of agency rules. The SEC rarely imposes sanctions, however, because investors would not benefit from companies with restatements under way putting out unreliable financial figures in a rush to meet the deadlines.
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, emerging from its own accounting scandal, said Tuesday that its earnings for the first half of 2005 were about $220 million lower than originally reported due to computer errors. The company said it earned $1.4 billion in the first six months of the year, instead of the $1.6 billion reported on Aug. 31.
Fannie Mae shares fell $1.04, or 2.2 percent, to $45.36 in early trading on the New York Stock Exchange. Its shares have traded in a 52-week range of $41.34 to $73.81.
If you I did it, it would be a CRIME. When they do it, it is an ERROR!!!
Try making more contributions to Congress Critters.
At one time, Ms. Jamie Gorelick had one of the higher paying jobs at Fannie Mae. i hear they have a great bonus program.