More bad news for Fannie Mae
They haven’t got to the bottom of the accounting/ reporting questions:
Fannie Mae said yesterday that its federal regulator has raised new accounting and internal control questions that could further damage the mortgage finance company’s financial results and capital position.
In a lengthy release that also described company plans to slash its congressional lobbying budget and cut other costs, Fannie Mae said the Office of Federal Housing
The regulators have identified two practices that they imply are being used to smooth Fannie Mae’s earnings:
Among the new questions raised are:
1. Whether Fannie Mae has been improperly classifying some of its securities as “held-to-maturity” when it really intends to sell them — a strategy that would help insulate the company’s balance sheet from short-term changes in market values (that is, smooth out earnings vibration — ed.)
2. OFHEO is also questioning Fannie’s transfer of some securities to separate “off-balance-sheet entities.” The practice is often used by companies to free up capital, but OFHEO has asked whether in Fannie’s case the transfers “serve a valid business purpose.”
Off-balance sheet transfers, you may recall, are often entirely appropriate but were also one of the many things that Enron used to cook its books.
The stock market is taking notice:
Fannie Mae’s stock closed at its lowest point in more than four years yesterday (
This isn’t good …
