The federal agency that oversees Fannie Mae has ordered the mortgage finance company to change some of its accounting practices.
Armando Falcon Jr., director of the Office of Federal Housing Enterprise Oversight, made public a letter he sent to Fannie Mae chairman and chief executive officer Franklin Raines. Falcon’s letter directed the mortgage giant to account for impairments in two categories of securities, manufactured housing and aircraft leases, in the periods in which they occur.
Falcon added that the OFHEO has determined that Fannie Mae is not applying the appropriate accounting with respect to revenue recognition for these securities.
“Fannie Mae improperly accounted for these assets in a way that fails to reflect losses,” he added in the letter. “As safety and soundness regulator, we will take the necessary steps to correct this.” Falcon set the close of business on May 14 as the deadline for the mortgage company to recalculate the proper asset impairment on the securities.
Falcon also reminded Fannie Mae that the agency continues to review fair value accounting, cash flow forecasting, and internal controls and “may have findings to communicate with you” in the future.
In a statement, Fannie Mae spokesman Chuck Greener said that the mortgage company would be “submitting the information required within the timeframe requested,” according to the Associated Press.
Fannie Mae nonetheless maintains that both KPMG, its auditor, and Ernst & Young, an adviser to its outside legal counsel, agreed with the mortgage company that it has already complied with the appropriate accounting treatment of the securities, reported Reuters. The wire service added that Fannie is also seeking guidance from the Securities and Exchange Commission on this matter.