Home mortgage giant Fannie Mae announced that it will reduce its earnings by $6.3 billion to correct accounting problems dating back to 2001.
In a filing with the Securities and Exchange Commission, the company said that the errors related to the way it accounted for complex derivatives -- resulting in a $7.9 billion loss after taxes that was about $2.9 billion less than previously estimated. But Fannie Mae said it misstated earnings by $6.3 billion when it worked through its statements from 2001 through the first two quarters of 2004, the last time it filed official results.
The restatement is among the largest for an American company, although it falls short of the $11 billion correction taken by WorldCom and previously reported estimates. In November, Fannie said that it expects the tab on the review and the preparation of up-to-date financial statements, to run upwards of $1 billion this year.
The government-sponsored agency has been pouring over its financial statements since the close of 2004, shortly after former chairman and chief executive Franklin Raines and former chief financial officer J. Timothy Howard were ousted from the company. Both men had collected hefty bonuses, tied to the manipulated earnings, during their tenure.
The director of the Office of Housing and Enterprise Oversight, James B. Lockhart III, has said his agency plans to file a lawsuit before the end of the year in an attempt to recover millions of dollars from the pair.
In May, the Securities and Exchange Commission and OFHEO fined the company $400 million, though neither regulator will file charges against the company. Congress has been discussing enacting legislation to create a more power regulator to limit the portfolios of both Fannie and its smaller mortgage competitor, Freddie Mac. OFHEO fined Freddie Mac a record $125 million in 2003 for misstating earnings by $5 billion -- mostly underreporting them. The holdings of the two companies currently total about $1.4 trillion.
