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Fannie Restatement Ordered

The staff of the Securities and Exchange Commission has ordered Fannie Mae to restate its financials over the last four years.

The decision comes as a huge blow to the nation's biggest mortgage company, whose bookkeeping has come under increasing fire in recent months. The company and its top officers, including CEO Franklin Raines, have repeatedly defended Fannie's accounting practices.

SEC Chief Accountant Donald Nicolaisen, in a statement released late Wednesday, said the government-sponsored company's accounting for 2001 through mid-2004 "did not comply in material respects" with accounting rules for derivatives, financial instruments used to hedge against interest rate swings, and for some transactions related to loans, The Associated Press reported.

Fannie said this fall that a restatement could force it to report after-tax losses on its derivatives transactions of as much as $9 billion. The losses could cause the company to become severely undercapitalized, an event that potentially could force it to sell stock or assets to raise money.

The SEC findings come on top of a scathing report filed this fall by Fannie's regulator, the Office of Federal Housing Enterprise Oversight. OFHEO contended Fannie Mae deliberately violated accounting rules in an effort to smooth out quarterly earnings, meet financial projections and boost bonuses for its top executives.

A Fannie spokesman indicated the company would comply with the SEC ruling, according to news reports.

Fannie shares rose 30 cents Wednesday to $70.69.

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