SEC faults 3 1/2 years of Fannie Mae's accounting

December 16, 2004|By BLOOMBERG NEWS

Fannie Mae, the biggest source of money for U.S. home mortgages, failed to comply with accounting rules for financial contracts designed to protect against swings in interests rates, the Securities and Exchange Commission said yesterday.

"Our review indicates that during the period under our review, from 2001 to mid-2004, Fannie Mae's accounting practices did not comply in material respects with the accounting requirements," SEC Chief Accountant Donald T. Nicolaisen said in a statement.

He said he "advised" Fannie Mae it should restate financial statements filed with SEC to eliminate the use of so-called hedge accounting.

The finding follows a September report by Fannie Mae's regulator accusing the company of wrongly accounting for hedging transactions on its mortgage portfolio, using improper "cookie jar" reserves, and deferring expenses in 1998 so executives could get their maximum bonuses.

The Office of Federal Housing Enterprise Oversight report also prompted a Justice Department investigation and pledges by Sen. Richard C. Shelby of Alabama, the Senate Banking Committee chairman, and other Republicans to revive legislation creating a tougher regulator for Fannie Mae and Freddie Mac.

Fannie Mae's board agreed in September to boost its capital and recalculate how it defers expenses and accounts for hedging transactions to protect its $913 billion mortgage portfolio from shifts in interest rates.

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