Fannie Delays Its Quarterly Filing

Fannie Mae (FNM), the scandal-tainted mortgage finance firm, says it's looking at a $9 billion loss in its derivatives portfolio if regulators don't accept its accounting practices.

The nation's biggest mortgage lender disclosed the potential loss in a press release late Monday. The news came as Fannie admitted that it won't be able to file its third-quarter financials with regulators on time.

Fannie said its auditor needs more time to go over its finances, in light of the serious questions raised about the firm's accounting practices by its regulator. The Washington-based company offered no timetable for completing the review, other than to say it won't be done this week.

In the filing, Fannie also says its third quarter will be an ugly one. The firm expects net income to decline by 9% from a year ago to $2.4 billion, or $2.45 a share. Core business earnings, a metric Fannie prefers to use to measure its performance, rose 1% to $1.84 billion.

Meanwhile, the company says it's likely to incur a $26 million after-tax loss for the first nine months of this year if it's forced to restate earnings. Fannie reiterated its stance that it believes its accounting has been appropriate, though it said Monday that "Fannie Mae will modify its accounting, if necessary, to comply with the SEC's views."

The far bigger news is Fannie's disclosure that it may have incurred $9 billion in after-tax losses in its derivatives transactions since January 2001. Fannie said it would incur that loss if regulators reject the accounting treatment Fannie had been using for the past several years to value those derivatives contracts.

The loss would reduce Fannie's regulatory capital, requiring the finance firm to come up with more cash to satisfy its main regulator, the Office of Federal Housing Enterprise Oversight.

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