Things are just not getting any better for Fannie Mae.
The largest mortgage conduit in the world has been struggling for nearly a
year to put right a multitude of problems arising from some fast accounting
footwork dating back to 2001. The outcome of these maybe intentional, maybe
not errors has been a requirement that the corporation restate earnings dating
back over the four questionable years. In the dustup two top executives, most
notably CEO Franklin Raines, were either fired or retired depending on whom
you ask and Fannie Mae (Stock symbol, FNM), a staple of the New York Stock Exchange
(NYSE) has failed to file the required financial reports to the Securities and
Exchange Commission (SEC) since late last year. Its announcement this week that
it will be blowing off yet another report has crossed the regulatory line where,
under NYSE's own rules regarding reporting, the exchange could be required to
de-list Fannie Mae Stock.
When the accounting errors first emerged Fannie Mae estimated that there would
be an adjustment of about $9 billion in its reported earnings over the contested
period. That number has since increased to over $11 billion
but may have increased again this week as the corporation found further irregularities,
this time with somewhat obscure insurance related issues. No estimate of these
additional potential revisions is currently available.
In Fannie Mae's press release this week announcing that it had again
filed Form 12b-25 with the SEC, the corporation pretty much fluffed over the
basis for the report. Form 12B-25 is required when a corporation is unable to
comply with SEC reporting regulations. Fannie focused instead on a number of
personnel changes including the appointment of Robert Blakely as new CFO. Blakely,
joins Fannie Mae from MCI, where he was executive vice president and CFO as
that company emerged from bankruptcy and tried to rectify significant accounting
problems surrounding its parent company WorldCom.
Fannie did state that it expects its 2005 annual financial report will not
be completed before the second half of 2006.
According to Fannie Mae, NYSE has filed a rule change with the Securities and
Exchange Commission that would allow the Exchange to modify its own regulations
in order to keep Fannie's stock listed in the face of its filing failures...
Since the accounting scandal broke about a year ago the Bush Administration
and Republican leadership in Congress, both of which have long wanted to see
Fannie Mae and Freddie Mac stripped of many of their powers, have worked hard
to bring the two Government Sponsored Enterprises (GSEs) under more federal
oversight and control. Federal Reserve Chairman Alan Greenspan has also been
outspoken about what he sees as the need to shrink the huge mortgage portfolios
maintained by both Freddie and Fannie. Both Fannie and its sister GSE Freddie
Mac have also been forced to significantly increase their capitalization.
Both the Office of Federal Housing Enterprise Oversight and the Department
of Justice are investigating Fannie Mae's accounting irregularities;
the latter is conducting a criminal investigation.
Freddie Mac, which encountered its own accounting nightmare a year ago but
has since pretty much righted the ship, announced on Wednesday that a "computer
error" would cause it to reduce its net income report for the first half
of 2005 by $220 million.