Fannie Mae said that it won't file its third quarter earnings report with the Securities and Exchange Commission by the end of this week because its independent auditor, KPMG, wouldn't sign off on its financials until issues related to the SEC's investigation into the company's accounting are resolved.

The mortgage giant also warned that if its accounting for some derivatives is deemed incorrect, it could have to restate earnings and report an after-tax loss of $9 billion on those transactions from 2001 through Sept. 30, 2004.

The quarterly SEC filing was due Nov. 15. The SEC launched a probe of Fannie Mae in late September, after the mortgage giant's regulator, the Office of Federal Housing Enterprise Oversight, issued a scathing report that alleged widespread accounting manipulations at the company.

The OFHEO report alleged that, in 1998, the company willfully violated generally accepted accounting principles in order to maximize executive bonuses -- an allegation that Fannie Mae's chief executive and chairman, Franklin D. Raines, refuted in testimony before members of Congress in October.

In its report, the OFHEO also raised a number of questions and concerns about Fannie Mae's accounting policies and practices, particularly related to two financial accounting standards -- FAS 91, Accounting for Nonrefundable Fees and Costs Associated with Originating or Acquiring Loans and Initial Direct Costs of Leases, and FAS 133, Accounting for Derivative Instruments and Hedging Activities.

In a filing Monday, Fannie Mae said that it "continues to believe that its current accounting policies and applications of FAS 91 and FAS 133 are consistent with generally accepted accounting principles."

Fannie Mae said that if it's determined that it hasn't met the criteria to qualify for hedge accounting since its Jan. 1, 2001, adoption of FAS 133, it would have to record an after-tax loss on its derivative transactions of roughly $9 billion as of Sept. 30, 2004. The company also said that if its current accounting under FAS 91 is deemed to not be in compliance with GAAP, it could report an after-tax loss of $26 million as of Sept. 30, 2004.

The company also said that it recently determined that its methodology for performing calculations to measure the catch-up adjustment required by FAS 91 for balance sheet dates in the periods 2001 through 2002 wasn't consistent with GAAP.

The SEC investigation into the mortgage concern's accounting practices could last well into next year, an SEC spokesman reportedly said this week. According to Reuters, SEC spokesman John Nester said, "It could take several months for the chief accountant to review its financials."

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