Four mortgage lenders will be filing their annual reports late due to requirements of the Sarbanes-Oxley Act of 2002.
Impac Mortgage Holdings Inc. notified the Securities and Exchange Commission that it would miss Wednesday's deadline to file its annual report on Form 10-K for the year ended Dec. 31, 2004 as a result of the compliance measures it took when restating several periods' financial statements.
"The time and resources committed to the restatements delayed the company's internal timetable with respect to its documentation, assessment and evaluation of internal control over financial reporting, which were undertaken in order to comply with the requirements of Section 404 of the Sarbanes-Oxley Act," Impac said in the notice filing with the SEC.
"Due in large part" to complying with the act, "management's assessment of the effectiveness of the company's internal control over financial reporting was substantially delayed, thereby delaying the performance" of its independent auditor KPMG LLP, the Newport Beach, Calif.-based lender added.
Late last month, the chief executive of the Mortgage Bankers Association wrote a letter to the SEC informing there was concern amongst the industry about the negative effects, including high costs, created by complying with the particular section of the Act, which calls for companies to employ a formal structure for management and their auditors to judge the effectiveness of the internal control over financial reporting in conjunction with an audit of financial statements.
Future criticism of the scope of their testing and increased penalties for inaccurate financial reporting imposed by the act "have created an atmosphere of 'near paranoia,'" leading both company management and auditors to perform excessive testing and documentation, the MBA said, adding that amongst the cons, the act's "point in time" requirement to have management assessments and auditor opinions on internal controls tested causes operation challenges with management, finance and auditors, since all have conflicting year-end priorities.
The real estate investment trust said it expects to file the annual report by March 31.
However, the 10-K filing will include unaudited financial statements as it does not believe that time will be sufficient for KPMG to issue an audit report on its 2004 financial statements and an assessment of the effectiveness of internal control over financial reporting.
Upon receipt of KPMG's audit reports, Impac will file an amended annual report on Form 10-K/A to include these reports and audited financial statements for 2004.
Accredited Home Lenders Holding Co. also filed for a 15-day extension with SEC to turn its 10-K annual report, citing "additional demands on management and other resources in complying with both the requirements of Section 404...and the shortened 10-K filing deadline applicable to Accredited as an accelerated filer," according to a press release Wednesday.
The San Diego-based nonprime lender expects to have the report completed and filed by the March 31 extension deadline.
In Edison, N.J., Hanover Capital Mortgage Holdings Inc. announced its earnings for the fourth quarter as well as for 2004, but also informed it intended to file the Form 10-K after completion of the year-end independent audit, expected no later than the end of this month.
"We wanted to provide shareholders a preview of what we anticipate final results for the fourth quarter and the full year will be as our staff continues to work with auditors to complete the year-end review, which includes compliance with Sarbanes-Oxley," said Hanover chief financial officer J. Holly Loux in the announcement. "During the review process, we determined that our historical method of accounting for reimbursable out-of-pocket expenses needed to be adjusted, but the accounting treatment will have no impact on net income for any period covered by our 2004 annual report or any prior period."
In Troy, Mich., Flagstar Bancorp Inc. also announced it had filed for the 15-day deadline extension to issue the 10-K report to the SEC.
The lender said that "despite diligent efforts," it was unable to finish the work necessary for the 10-K, "including complying with the internal control requirements" of the Act by the March 16 due date "without unreasonable effort and expense."
Mortgage Bankers Request Relief
Mortgage lenders, frustrated with the high cost of complying with the Sarbanes-Oxley Act of 2002, have warned the Securities and Exchange Commission that investors, employees and American competitiveness may all suffer if compliance requirements don't ease up.