Fannie Is Directed To Restate Results For Four Years

Wall Street Journal ^ | 12/16/04 | James Haggerty

[BurbankKarl]

The chief accountant of the Securities and Exchange Commission found that Fannie Mae violated accounting rules and must restate its earnings for the past four years.

That decision will force the giant mortgage-finance company to recognize an estimated $9 billion of losses on derivatives used to hedge interest-rate risks, probably in its next quarterly earnings report. It also is likely to lead to senior management changes at Fannie and a surrender by the company to demands by the Bush administration that it submit to tighter regulation.

A Fannie spokesman said the company will comply with the SEC's decision. But the spokesman declined to comment on whether Franklin D. Raines, the company's chairman and chief executive officer, or Timothy Howard, the chief financial officer, will resign. Mr. Raines, after asserting that Fannie's accounting methods were proper at a Congressional hearing in October, said at the time that he would take responsibility if the SEC found otherwise.

The SEC's finding strengthens the hand of the Bush administration in prodding Congress to enact legislation that would create a powerful new regulatory agency to oversee Fannie as well as its smaller rival, Freddie Mac. An accounting scandal at Freddie last year resulted in that company ousting several top executives and making a $5 billion earnings restatement. Critics have complained that the Office of Federal Housing Enterprise Oversight, or Ofheo, lacks sufficient power to effectively monitor the two companies.

The restatement is expected to push Fannie below the minimum capital requirements set by its regulators. The company, which reported earnings of $5.43 billion for this year's first nine months, may have to sell some of its more than $900 billion of mortgage-related holdings to raise capital. It already has slowed its purchases of mortgages in recent months and may need to

[BurbankKarl]

Big Trouble in Little China!

[mcenedo]

It's about time. Fannie and Freddie need to be held to the same standards as every other corporation that sells stock.

Where is Elliot (the snake) Spitzer on this one?

[Congressman Billybob]

So they will restate their earnings for four years. Will Jamie Gorlick (yes, THAT Gorlick) be required to return the bonus that she received, like the other commissioners, which were based on the earnings of the corporation? Not bloody likely.

Congressman Billybob

Click for latest, "Should the Iraqi Election be Delayed?"

[ex-Texan]

Fannie and Freddie might have had accountants (both inside and outside) trashing and slashing embarassing stuff from way back. Just my humble opinion, folks! I know nothing anyway.

How does one value a company that holds all of its mortgage paper with a short term or intermediate term approach, and then sells the paper out the back door to another lender? Often, investment banks buy portfolios of mortgages without true knowledge of the value of the individual risks involved. A mortage in South Bend, New York may have an badly inflated appraisal, but who knows about it, really? Does Fannie or Freddie? Methinks they might have an inkling or perhaps a remote glimmer.

Oh, well . . .

Face it folks, there may be more to this house of cards than anybody really knows or understands. As a local wag said to me. "Our money is printed on worthless paper anyway. It might as well be counterfeit." Think about that for a minute. JMPO and what do I know anyway.

Be well. Stay safe. Peace be with you.

[pineconeland]

Update 3: SEC: Fannie Mae Violated Accounting Rules

http://www.forbes.com/associatedpress/feeds/ap/2004/12/15/ap1715401.html

12.15.2004, 09:58 PM

An official of the Securities and Exchange Commission said Wednesday a review had found that Fannie Mae had violated accounting rules and that he had told the mortgage giant to restate its earnings.

SEC Chief Accountant Donald Nicolaisen, in a statement, said the government-sponsored company's accounting for 2001 through mid-2004 "did not comply in material respects" with accounting rules for derivatives, financial instruments used to hedge against interest-rate swings, and for some transactions related to loans.

The SEC and the Justice Department have been investigating the accounting of Fannie Mae, which finances one of every five home loans in the United States. Fannie Mae said last month that if the agency found that it had improperly accounted for derivatives, it would show an estimated net loss of $9 billion for the third quarter of this year.

"We appreciate the comprehensive and expeditious review of these accounting issues," Fannie Mae spokesman Chuck Greener said in a statement issued Wednesday night. "We will take the steps necessary to comply fully with the SEC's determination. Fannie Mae is committed to operating in a safe and sound manner."

Nicolaisen said the SEC took the unusual step of making public the findings of the staff review before the SEC had completed its investigation because Fannie Mae had asked the agency for its opinion.

"I have advised Fannie Mae that ... to provide investors with appropriate information, Fannie Mae should restate its financial statements," Nicolaisen's statement said.

In September, regulators in the Office of Federal Housing Enterprise Oversight cited Washington-based Fannie Mae for serious accounting problems and accused the company of earnings manipulation. The regulators had ordered Fannie Mae to complete massive recalculations, and the delay fueled speculation as to whether the company would restate earnings.

Company chief executive Franklin Raines and Chief Financial Officer Timothy Howard defended the company's accounting in sworn testimony at a congressional hearing in October and rejected the regulators' allegations of accounting improprieties and management misdeeds going back to the late 1990s.

Fannie Mae last month missed an SEC deadline for filing its third-quarter financial results after its independent auditor KPMG refused to sign off on the report. The company also acknowledged that some of its accounting practices don't comply with generally accepted accounting principles.

A restatement could lead Fannie Mae's board to shuffle the company's executive ranks.

Rep. Michael Oxley, R-Ohio, chairman of the House Financial Services Committee and a longtime critic of Fannie Mae, said Wednesday that the SEC findings reaffirm the conclusions of the OFHEO regulators "and underscore the need for Congress to closely examine these issues."

"I am deeply disturbed that investors, the markets and Congress were misled by deceptive practices at Fannie Mae," Oxley said.

Fannie Mae and its smaller sibling Freddie Mac pump money into the home mortgage market by buying and guaranteeing repayment of billions of dollars of home loans each year from banks and other lenders, then bundling them into securities that are resold to investors. Their stock and debt are widely held by investors worldwide.

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Fannie Mae's Vice Chair Jamie Gorelick to Step Down in July;to devote substantial time to the bipartisan national commission investigating the attacks of September 11, 2001

January 10, 2003

http://www.fanniemae.com/newsreleases/2003/2340.jhtml?p=Media&s=News+Releases

Fannie Mae's Vice Chair Jamie Gorelick to Step Down in July; CFO Timothy Howard to Become Vice Chairman

WASHINGTON, DC -- Fannie Mae (FNM/NYSE), the nation's largest source of financing for home mortgages, today announced that Vice Chair Jamie Gorelick has advised the company she will step down on July 1, 2003, to devote substantial time to the bipartisan national commission investigating the attacks of September 11, 2001 and to pursue other interests. The company also announced that its Executive Vice President and Chief Financial Officer, Timothy Howard, will succeed Gorelick as Vice Chair, and will be nominated to be elected to the Board of Directors at the annual meeting in May.

"Jamie Gorelick's leadership is a big reason why Fannie Mae is a great company that achieves its mission of bringing the American Dream to all Americans," said Fannie Mae's Chairman and CEO Franklin D. Raines. "Jamie's unwavering focus on our corporate responsibility has made Fannie Mae the market leader in serving minority and lower-income families, a model corporate citizen, and one of America's best places to work."

"All of us at Fannie Mae are extremely proud of Jamie's commitment and service to the company and her devotion to the American Dream business," Raines said. "But we are also proud of her lifelong devotion to public service and her commitment -- and the unique contributions she will make -- to helping our nation understand and learn from the events that led to the searing tragedy of September 11th. We appreciate her dedication to the company and to our nation, and we will deeply miss her presence at Fannie Mae."

Gorelick joined the company in May 1997 as Vice Chair. As a member of the Office of the Chairman, she has shared responsibility for the overall management of the company, directed its efforts to reach underserved markets and has overseen Fannie Mae's external relationships, legal and regulatory affairs.

"This has been an extremely hard decision for me because I am so proud of the role that our company plays in the housing finance system," Gorelick said.

"However, I was very honored to have been asked to serve on the bipartisan national commission that will investigate the prelude to the attacks that occurred on September 11th. This Commission has an important responsibility to our nation as we seek to understand what went wrong in order to avoid attacks of this nature in the future. I have come to the conclusion that fulfilling my duty to this Commission is not compatible with the full-time commitment required of a Vice Chair of Fannie Mae," Gorelick said.

Gorelick has a long and extensive history of public service. Prior to joining Fannie Mae, she was Deputy Attorney General of the United States, a position she assumed in March 1994. From May 1993 until she joined the Justice Department, Gorelick served as General Counsel of the Department of Defense, and from 1979 to 1980, she was Assistant to the Secretary and Counselor to the Deputy Secretary of Energy.

Gorelick co-chaired, with Senator Sam Nunn, the Advisory Committee on Critical Infrastructure Protection and currently serves on the Central Intelligence Agency's National Security Advisory Panel. She also served on President George W. Bush's Review of Intelligence. Gorelick has received many awards and commendations including the Secretary of Defense Distinguished Service Medal, the Director of Central Intelligence Award, and the Department of Justice's Edmund J. Randolph Award.

Gorelick also currently serves on a number of corporate and non-profit Boards including: United Technologies Corporation; Schlumberger, Limited; The John D. and Catherine T. MacArthur Foundation; Harvard College Board of Overseers; America's Promise; and The National Park Foundation. She is listed in Fortune magazine's "Fifty Most Powerful Women in American Business" and Working Mother magazine's "Twenty-Five Most Influential Working Mothers in America."

In announcing that Howard would become Vice Chairman and Chief Financial Officer of Fannie Mae, Raines said, "Tim Howard's extraordinary record of service, experience, and financial leadership at Fannie Mae has been key to our record of low-risk growth, cutting-edge transparency and success in the American Dream business. Tim's new role as Vice Chairman of Fannie Mae will further ensure our company's success in harnessing private capital to expand the American Dream."

Howard will have responsibility for Fannie Mae's mortgage portfolio business, corporate risk management, and corporate financial management. Howard joined the company in 1982 and became Chief Financial Officer in 1990. In addition to Howard, the Office of the Chairman includes Raines, and Daniel H. Mudd, Vice Chairman and Chief Operating Officer.

Fannie Mae is a New York Stock Exchange company and the largest non-bank financial services company in the world. It operates pursuant to a federal charter and is the nation's largest source of financing for home mortgages. Fannie Mae is working to shrink the nation's "homeownership gaps" through a $2 trillion "American Dream Commitment" to increase homeownership rates and serve 18 million targeted American families by the end of the decade. Since 1968, Fannie Mae has provided over $4 trillion of mortgage financing for 47 million families.

Style Usage: Fannie Mae's Board of Directors has authorized the company to operate as "Fannie Mae," and the company's stock is now listed on the NYSE as "Fannie Mae." In order to facilitate clarity and avoid confusion, news organizations are asked to refer to the company exclusively as "Fannie Mae."

Consumer Resource Center Telephone 1-800-7FANNIE

(1-800-732-6643)

[ex-Texan]

House o'cards, perhaps? What do you think?

[BurbankKarl]

Well, if a third of their mortgage debt is held by foreign buyers looking for a reason to pull out of the American Markets...this could be it.

[ex-Texan]

Rumors, just rumors, but some of mortgage paper might be held by foreign countries, or companies controlled by holding companies, or controoled by organized crime syndicates based in other countries. How do you think legitimate companies can advertise "we will loan you money even if you have no equity?" Italians, Russkies, Chinese, or whatever, take your pick: yada, yada, yada. I leave the dirty details to your own imagination.

[WilliamofCarmichael]

RE: "Fannie Mae and its smaller sibling Freddie Mac pump money into the home mortgage market by buying and guaranteeing repayment of billions of dollars of home loans each year from banks and other lenders, then bundling them into securities that are resold to investors. Their stock and debt are widely held by investors worldwide."

Though neither is a government agency they are government sponsored entities I believe. So when it says, they "pump money into the home mortgage market by buying and guaranteeing repayment of billions of dollars of home loans" how do they guarantee repayment?

Are taxpayers somehow their (not so willing) partners? Kinda like the FDIC.

[antonia]

Fannie Mae and its smaller sibling Freddie Mac pump money into the home mortgage market by buying and guaranteeing repayment of billions of dollars of home loans each year from banks and other lenders, then bundling them into securities that are resold to investors. Their stock and debt are widely held by investors worldwide.

+

According to the U.S. Bureau of the Census, the resident population of the United States, projected to 12/16/2004 at 12:24:47 AM EST is

294,983,539 

COMPONENT SETTINGS

	One birth every..................................   7 seconds
	One death every..................................  12 seconds
	One international migrant (net) every............  24 seconds
	Net gain of one person every.....................  11 seconds

Historical National Population Estimates

Documentation for these projections.

Source: U.S. Census Bureau, Population Division
Maintained By: Information & Research Services
Internet Staff (Population Division)
Data Revised Monthly

---

If the population of American is a mere 294,983,539 million, how is that we find that Kofi, France and saddam has robbed us of at least 32 billion dollars, we are able to spend according to various estimates, the cost of reconstructing Iraq after the overthrow of Saddam Hussein's regime could range from $50 billion to $100 billion, ( just to name a few of the BILLIONS of dollars which we so often here of being thrown around so generously at our expense) ~ it just seems to me that the American tax payer should not be having to work two jobs or having to raise their children with child care or putting up with any of the BS that the public school system dishes out so liberally, shouldn't we be able to enjoy the fruits of this country's labors? Where the heck is so much money coming from? Is it really just a figment of some bureaucrat's imaginations ~ created with bogus debt? Or does it represent real wealth? If it represented real wealth we would not be running around chasing our tales so frantically, we would be just be playing at chasing our tales.

 

[pineconeland]

Where the heck is so much money coming from? Is it really just a figment of some bureaucrat's imaginations ~ created with bogus debt? Or does it represent real wealth? If it represented real wealth we would not be running around chasing our tales so frantically, we would be just be playing at chasing our tales.

The better question is where is all this wealth going? Why isn't it being returned to the creator's resources for further growth? 

If this money were a reality in the American economy would this vast amount of cash just create deflation?

[appeal2]

Simple matter. They are too big to fail. Just like Citibank, Chase and BOA. Push comes to shove and Uncle Sam will be there with a warehouse of freshly printed greenbacks to bail them out.

[nanak]

House o'cards, perhaps? What do you think?

I can clearly see the parallels between 1920ies and 1990ies(stock market bubbles), 1929 and 2000(stock market declines, fed lowers interest rates, housing bubble inflated), 1932 and 200?(pop goes the housing bubble, stock market crash, great depression).

[leadpenny]

C-SPAN had an excellent Live program on the 14th on the troubles at Fannie Mae. You can get the RealPlayer link from the C-SPAN main page ( http://www.c-span.org/ ), or by going to the Economy/Fiscal section of the Video Library ( http://www.c-span.org/VideoArchives.asp?z1=&PopupMenu_Name=Economy/Fiscal&CatCodePairs=Issue,EF; ), also linked from the main page.

[leadpenny]

That's the real issue. These people paid themselves gigantic bonuses over the past four or five years based on cooked numbers.

[ex-Texan]

Merely the tip of the corruption iceberg. Who is gonna prosecute politically connected power players for this type of fraud and corruption? Huh? Gorelick already got away with a high profile white wash of 9=11 and with her nasty commentary about W on the record. Fanny and Freddy are just another blip on the corporate corruption screen. When the cards come a 'tumblin down, taxpayers will be forced to pay for the entire boondoggle. Believe appeal2 is correct in guessing the fed will just print more money. Why not, anyway? It is just paper. Like the bill for Iraq. Just a huge pile of paper. When things get really nasty W will go to Congress and ask for higher taxes. As for me, I personally believe people in the D.C. may start whispering about "restructuring" the nation debt. After all, its really just a huge pile of paper. Yada, yada, yada. (/sarcasm)

In the prophetic words of Bob Dillion. 'The times are a changin' . . .'

[GOPJ]

Looks like this has been a long time coming.

[BurbankKarl]

Sure has....since the 90s

[GOPJ]

In September, regulators in the Office of Federal Housing Enterprise Oversight cited Washington-based Fannie Mae for serious accounting problems and accused the company of earnings manipulation. The regulators had ordered Fannie Mae to complete massive recalculations, and the delay fueled speculation as to whether the company would restate earnings.

Company chief executive Franklin Raines and Chief Financial Officer Timothy Howard defended the company's accounting in sworn testimony at a congressional hearing in October and rejected the regulators' allegations of accounting improprieties and management misdeeds going back to the late 1990s.

This is from 2004 - McCain should take a step back and everyone needs to slow this thing down. These problems are old - they're being pushed forward BECAUSE of the election. McCain and Obama need to deal with this AFTER the election. Until then, pay off depositors of failed banks, make the "mortgage payments" of homes about to be foreclosed for a few months - and let the new President deal with it in a cool rational manner.

[politicket]

These problems are old - they're being pushed forward BECAUSE of the election.

Yes, the problems are old - but they are much, much bigger in size now.

I agree about stepping back because the proposed government solution could make the problem much worse.

Our economy may not make it to the next election before it comes crashing down.