Risk & Compliance

Freddie Mac Delays Reports by Two Months

But investor fears seem allayed as detailed disclosures accompany the setback.
Stephen TaubMarch 10, 2006

Officials at Freddie Mac announced that the company would delay filing its 2005 financials by two months, until May. However, in a press release, the second-largest U.S. mortgage-funding company said it needed the extra time to implement a significant improvement in its method for determining the estimated fair values of its guarantee assets and guarantee obligations.

More will be explained in the company’s quarterly conference call scheduled for March 30, during which management will discuss the company’s business and preliminary financial performance for 2005 — and its expected financial-reporting schedule and business outlook for 2006.

Investors seemed somewhat forgiving, bidding up Freddie Mac shares a fraction on an otherwise strong day for the overall stock market. The relatively small up-tick in the stock price is significant, however, because the company still has not regularly filed financial reports since its accounting scandal in 2003. “We have made substantial progress in fixing our financial-reporting infrastructure, but our work is not done,” says Martin Baumann, Freddie Mac’s chief financial officer.

By year’s end, the company expects to return to a quarterly reporting schedule, as well as a timely filing regiment of GAAP-compliant, monthly capital reports. Freddie Mac files its results with Office of Federal Housing Enterprise Oversight, its primary regulator.

Part of the improved process is linked to making greater use of third-party market information in Freddie Mac’s valuation methodology, a change that will be reflected in its 2005 financial statements. The change “significantly improves reliability and transparency in the valuation of these instruments,” noted a company statement, referring to the asset guarantees.

“Getting this infrastructure to the point where it can support timely, reliable quarterly reporting continues to be an enormously complex task,” added Baumann. “Our efforts to accelerate our previously planned controls initiatives and implement reporting enhancements create short-term challenges, but we believe the long-term benefits of these improvements are substantial.”