Fannie Mae's revised financial statements cut past profits by more than $6 billion.
The mortgage giant released Wednesday consolidated financial statements for 2004, and a restatement of financial information for years 2002, 2003, and the first two quarters of 2004.
The overall impact of the restatement reduced retained earnings by $6.3 billion through June 30, 2004, with the most significant cause of the adjustment being the "recognition in income of derivative fair value adjustments due to the loss of hedge accounting," Fannie said in a guide to the 2004 annual report filing.
Fannie's regulator, the Office of Federal Housing Enterprise Oversight, said the restatement was a "key step forward for the company and represents two years of hard work," but "much remains to be done."
"As reflected in the 10-K, Fannie Mae faces enormous challenges in fixing its operational and risk management systems, in SarbanesOxley compliance, and in producing audited financial statements for 2005 and 2006," OFHEO Director James B. Lockhart said in the announcement. "Concerns remain with the speed of returning to full and timely financial reporting, the robustness of the Enterprise's internal controls (as reflected in the large number of material weaknesses), and the accuracy of its accounting systems."
Despite a cut in retained earnings, stockholders' equity increased by $4.1 billion through the second quarter 2004, according to the guide.
OFHEO said it will continue to monitor Fannie's "efforts to correct its problems, to operate in a safe and sound manner and to maintain an adequate capital cushion during this time of uncertainty."