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| Mortgage giant Fannie Mae may have to restate previously reported earnings because of accounting irregularities, federal regulators who are examining the congressionally chartered corporation’s books said this week.
The Office of Federal Housing Enterprise Oversight hinted at a possible restatement Wednesday in its quarterly capital classification announcement for Fannie and Freddie Mac. Chief regulator Armando Falcon Jr. then confirmed Thursday that he was investigating accounting practices at the nation’s leading source of mortgage funds, including how the company handled impairments. “Our review of this particular matter, while not concluded, has led to concerns that Fannie Mae may not have applied the proper accounting guidance in this area,” Falcon said in a statement. “This could affect not only the company’s manufactured housing portfolio but other assets as well. The impact of this possible misapplication of [Generally Accepted Accounting Principles] on Fannie Mae’s financial statements is under examination.” The OFHEO did not provide any details about the size of any possible restatement, nor did it indicate whether the results were expected to help or hurt the company’s bottom line. “The language in the letter with respect to the OFHEO special examination straightforwardly states the fact that it is ongoing,” Fannie spokesman Chuck Greener said in a statement, according to published reports. “As previously announced, OFHEO has recently retained a national accounting firm to supplement the agency’s efforts and obviously has not reached any conclusions.” The audit comes in the wake of an accounting scandal at Freddie last year in which the other government-sponsored enterprise acknowledged misstating some $5 billion in earnings over three years, revelations that led to the ouster of top executives at the publicly traded company. Fannie then had to restate $1.1 billion of its stockholder equity last November after it miscalculated mortgage commitments. “First Freddie Mac and now possibly Fannie Mae,” said Mike House, executive director of FM Policy Focus, a coalition of groups that are critical of the GSEs. “How long before taxpayers can feel confident that they have a regulator that knows what is really going on at the GSEs and that they have adequate protection against a financial catastrophe?” Federal Reserve Chairman Alan Greenspan recently warned that the two companies, which have a virtual monopoly in the secondary mortgage market, had amassed massive debts that could threaten the national economy if left unchecked. |
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Michael Patrick Carney is a Washington, D.C.-based freelance journalist who has worked from Reuters in Jerusalem and North America. He holds a master’s degree from University of Missouri’s School of Journalism and teaches reporting at a Virginia college.email: [email protected] |
