U.S. Raises New Questions on Fannie Mae’s Accounting

Fannie Mae on Wednesday said its regulator had identified new issues with the mortgage giant’s accounting, raising fresh questions about how big the company’s problems may become before they are resolved.

The new issues reach to the very base of Fannie’s accounting practices, analysts said, noting problems with journal entries and Fannie’s decision to start a “bottom-up” review of its accounting functions.

The problems also may affect the size of Fannie’s earnings restatement, which the company first estimated at $9 billion based on accounting problems previously disclosed. Fannie would not comment on how the regulator’s new questions would affect the company’s restatement.

“Finding more issues in the accounting realm is truly not a positive,” said Ed Groshans, an analyst at Fox-Pitt, Kelton in New York.

Fannie’s regulator, the Office of Federal Housing Enterprise Oversight, has found policies that appear inconsistent with generally accepted accounting principles and also has discovered internal control deficiencies, Fannie said.

The regulator’s concerns relate to securities accounting, loan accounting consolidations and practices to smooth certain income and expense amounts.

The oversight office’s questions about Fannie Mae’s accounting have grown to include issues with at least five accounting standards. Previously, accounting concerns assessed by the Securities and Exchange Commission revolved around two such standards.

Investigations by the oversight office, the SEC and the Justice Department remain open.

Shares of Fannie Mae dropped to $56.50, a low not seen since 2000, before settling at $57.16, down 64 cents on the New York Stock Exchange.