The money has to come from someplace, and Fannie Mae, facing a $9 billion restatement of earnings for the years 2001 to 2004 and a demand from regulators that it increase its capital surplus by 30 percent, had a lot of money, some say $12.5 billion, to come up with.

On Tuesday Fannie, whether on its own accord or under further pressure from regulators, announced that it was slashing its quarterly dividend for holders of its common stock.


The next divided, payable on February 25 to shareholders of record on January 31, will be $0.26 per share rather than the anticipated $0.52. This will be the first year since 1986 that Fannie has failed to actually raise its dividend.

Fannie Mae's problems became public in late summer when both the Securities and Exchange Commission (SEC) and The Department of Justice announced they were investigating accounting regularities at the company which, along with its sister corporation, Freddie Mac, owns or guarantees about 50% of the country's $7.6 trillion mortgage market. The SEC subsequently ordered Fannie to restate its earnings for the last four years and the firm's accountant, its CEO and CFO were fired or forced to resign. Other legal problems are looming, from both individual states and a number of stockholder class action suits.

It was widely expected that lowering the dividend was the last step that Fannie's Board of Directors wished to take. They have already privately placed $5 billion in new preferred stock and many thought they would either slow down lending activities to conserve capitol or sell some of Fannie's huge mortgage holdings to raise further cash.

Analysts speculated that the cut in dividends was forced by the Office of Federal Housing Enterprise Oversight (OFHEO) which regulates both Fannie and Freddie. OFHEO appears determined to bring both corporations under tighter control and Republicans in Congress seem inclined to agree.

The announcement of the divided cut came late on Tuesday and the markets reacted after closing, dropping Fannie Mae stock (FNME) by $1.70 or 2.4 percent to $68 per share. By mid-day Wednesday the stock was down another 0.10 to 67.90.