Accounting & Tax

Fannie Finds More Accounting Errors

Mortgage finance company does not expect to complete its 2004 report, which will include restated results, until at least the second half of 2006.
Stephen TaubMarch 13, 2006

The Federal National Mortgage Association (FNMA, or Fannie Mae) announced that it has uncovered new accounting errors and that it will not file its annual report on time for the second straight year.

The company stated that in addition to delaying its 2005 report, it does not expect to complete its 2004 report — which will include restated results for periods from January 2001 through the second quarter of 2004 — until at least the second half of 2006.

In a regulatory filing, Fannie Mae elaborated that the errors include accounting for certain investment securities at the incorrect cost basis; accounting for certain guaranty fees and obligations in connection with a small portion of mortgage-backed securities trusts; and certain loan-related accounting matters, such as accounting for real estate-owned and foreclosed property expense, accounting for troubled debt restructurings, accounting for the accrual of interest on seriously delinquent loans, and accounting for reverse mortgages.

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President and chief executive officer Daniel H. Mudd noted that these issues have been reviewed with Fannie Mae’s regulator, the Office of Federal Housing Enterprise Oversight. “Based on our current view of these errors,” he continued, “we believe we continue to meet our regulatory capital requirements as well as the 30 percent surplus over our minimum requirement set forth in our September 27, 2004 agreement” with the oversight agency.

Mudd also maintained that the company has made “substantial progress” in completing its agency-ordered accounting review.

Even so, Fannie Mae added in its filing that it expects a management report to conclude that its internal control over financial reporting for the year ended December 31, 2005, was ineffective.