Fannie sees additional losses

UPDATE 4-Fannie sees additional losses, stock tumbles

Thu Mar 17, 2005 06:14 PM ET
(Rewrites throughout)
By Kristin Roberts
Source


WASHINGTON, March 17 (Reuters) - Fannie Mae (FNM.N: Quote, Profile, Research) on Thursday said it would have to record $2.4 billion in additional losses for 2004 if the company's accounting for its mortgage commitments as derivatives is not allowed.

The embattled mortgage finance company would have had to record a $2.8 billion loss through June 30, 2004, if it did not qualify for such accounting treatment, the company said in a filing with the U.S. Securities and Exchange Commission.

That would come on top of the roughly $9 billion in losses related to derivatives Fannie Mae said it would have to record based on accounting problems raised earlier.

The announcement coincided with revelations that company employees falsified signatures on accounting ledgers and made changes to earnings-related records without following proper procedures -- driving Fannie's stock down more than 4 percent.

"We have found instances of falsifying signatures on accounting ledgers and making changes to database records," an official from the Office of Federal Housing Enterprise Oversight, Fannie's regulator, said on condition of anonymity.

Fannie's stock dropped $2.45 to close at $54.50. It hit an intraday low of $53.88, its lowest level since September 2000.

"The act itself is bad in its own right, but that's not what's driving the stock," said Paul Miller, equity analyst at Friedman Billings Ramsey. "What's driving the stock is that if these guys were at the point of falsifying signatures, what else are they doing?"

Fannie Mae declined to comment on the regulator's statement that employees had falsified signatures.

Investigations by OFHEO and the U.S. Securities and Exchange Commission continue into Fannie's accounting problems, which led to the ousting of top executives last year.

Fannie Mae will not file its annual financial report on time with securities regulators, the company also said Thursday.

STIFFER OVERSIGHT

Fannie's accounting problems are unfolding as Congress considers tougher oversight of the company and sister housing enterprise Freddie Mac (FRE.N: Quote, Profile, Research) .

Republicans in the House and Senate have said they will consider legislation to create a stronger regulator with the power to shut down the government-sponsored housing enterprises (GSE) in the event of insolvency.

The companies carry congressional charters and are charged with ensuring a liquid mortgage market.

A bill could be offered in the House as early as Friday, sources said.

The Senate Banking Committee has scheduled hearings on GSE legislation for April. Federal Reserve Chairman Alan Greenspan will testify April 6, followed by Treasury Secretary John Snow and Housing and Urban Development Secretary Alphonso Jackson on April 7.

Fannie Mae and Freddie Mac buy mortgages from originators and package them as mortgage-backed securities. They also keep mortgages in their portfolios as whole loans or securities. In 2003, the GSEs accounted for 47.2 percent of total residential mortgage debt outstanding, their regulator said.