Late Wednesday, as 2004 drew to a close, Fannie Mae made an initial move to put its horrible year behind it by pricing $5 billion in preferred stock for sale to unnamed institutional investors. The Corporation had been expected to offer only $4 billion in such stock as late as Wednesday morning.

In what may be the largest private stock sale in history, Fannie offered $2.5 billion in 5.375 percent Non-Cumulative Convertible Preferred Stock and $2.5 billion in Non-Cumulative Preferred Stock.

The Office of Housing Enterprise Oversight, which oversees Fannie Mae, has stated that Fannie is significantly undercapitalized and needs to raise funds to offset a $3 billion shortfall in capital for the Third Quarter of 2004. The shortfall resulted from a $9 billion overstatement of earnings over the last four years, figures which the Corporation has been ordered to restate by the Securities and Exchange Commission. Two of Fannies top executives, CEO Franklin Raines and CFO Timothy Howard were forced to either �resign� or �retire� and the Corporation�s auditor, KPMG, was fired by Fannies Board of Directors a few days before Christmas.

Even with the sale of these preferred stocks, Fannie will remain undercapitalized by $7.5 billion since OFHEO is expected to hike its capital requirements by 30 percent by mid-year.