Fannie Finds More Accounting Errors
As it continues to peel through the onion-like layers of its $11 billion worth of faulty accounting, mortgage company Fannie Mae disclosed Monday that it had found additional errors in its government-ordered review.
The government-sponsored company, which finances 1 of every 5 home loans in the United States, said it had made “substantial progress” toward completing its accounting review but would miss a regulatory deadline for filing its annual financial report for the second straight year. Thursday is the deadline for the filing with the Securities and Exchange Commission.
Fannie Mae also said it expected an upcoming internal report to show that its financial controls remained insufficient as recently as the end of last year.
Federal regulators in 2004 accused Fannie Mae of having serious accounting problems and manipulating earnings to meet Wall Street targets, and the SEC ordered the company to restate earnings back to 2001 -- a correction expected to amount to an estimated $11 billion. The Justice Department is pursuing a criminal investigation.
Fannie Mae, the second-largest U.S. financial institution, after Citigroup, expects to complete the massive reworking in the latter half of this year. The company said in its SEC filing Monday that it had completed “the process of identifying accounting issues for review.”
While it struggles to untangle its accounting, Fannie Mae’s share of the multitrillion-dollar home mortgage market has eroded amid heated competition from big banks and mortgage companies. The company reported Monday that its portion of the market for home loans that are bundled into securities and sold to investors dropped to about 24% last year from 29% in 2004 and 45% in 2003.
Fannie Mae said the newly disclosed accounting errors were in loans, investment securities, guaranty fees charged to banks and other mortgage lenders, houses acquired through foreclosure, interest on delinquent loans, and reverse mortgages. It did not provide an estimate of the amounts of the errors.
In November, Fannie Mae disclosed new accounting problems in such areas as recording losses on mortgages and the mortgage-backed securities it guarantees as well as expenses for financing some real estate investments and accounting for low-income housing tax credits and mortgage insurance.
These are separate from the accounting violations that came to light in September 2004 involving derivatives, the financial instruments Fannie Mae uses to hedge against swings in interest rates, and its mortgage commitments.
A company-ordered report released last month detailed a breakdown in financial controls and found an arrogant corporate culture at Washington-based Fannie Mae.
Fannie Mae shares fell 96 cents to $52.97.
