Fannie Regulator Mulling Data

The big mortgage company's capital situation will remain a mystery for now.
By TSC Staff ,

Fannie Mae

(FNM)

said Monday that investors shouldn't expect a quarterly update on its financial health.

The Washington-based mortgage giant said in a postclose press release that its regulator won't release a quarter-end capital classification for the company "at this time." Fannie said it continues to provide the regulator, the Office of Federal Housing Enterprise Oversight, with data on its books.

"It has been OFHEO's practice to determine and announce Fannie Mae's quarterly capital classification within 90 days of the quarter end," Fannie said Monday. "However, with respect to Fannie Mae's capital classification as of Dec. 31, 2004, OFHEO will not be releasing the capital classification at this time as Fannie Mae continues to provide OFHEO with information related to the company's accounting and controls that may affect its capital classification."

The remarks are noteworthy because Fannie's capital situation will help to determine how much money the company needs to raise to satisfy regulators probing its accounting practices. Fannie is in the process of trying to raise capital to fix a gaping hole on its balance sheet.

OFHEO hasn't commented on Fannie's capital adequacy since director Armando Falcon deemed the company "significantly undercapitalized" on Dec. 21. The federally chartered company ousted CEO Franklin Raines in the wake of that comment.

Fannie is already in the process of restating its books because of its accounting problems. Regulators have indicated the company failed to recognize some $9 billion worth of derivatives losses in its income statements over a period of years.

Earlier this year, Fannie sold $5 billion in preferred stock to provide some of the money.

A Wall Street analyst, who did not want to be identified, said the delay in reporting the capital figures is not surprising, given that Fannie is in the midst of a big restatement.

Monday's news comes just a week after Fannie Mae's latest bookkeeping setback. The company

warned March 18 that it wouldn't be able to file its annual report on form 10-K before a March 31 deadline. Fannie Mae said at the time that it could be forced to wipe an added $2.4 billion in profit off its books as it works to fix accounting problems that were identified by OFHEO in February.

The agency questioned whether certain commitments Fannie made to buy or sell mortgages were really derivatives under an accounting rule known as FAS 149, and whether they qualified for derivative-hedge accounting.

Fannie failed to file its 10-Q statement with the

SEC

for the quarter ended Sept. 30 and appears nowhere near filing the full-year report.

Fannie reached a supplemental agreement with OFHEO on March 7 aimed at resolving a slew of new concerns, including "deficiencies in internal controls, corporate governance and accounting systems." The agreement forbade "the falsification of signatures."

On Monday, shares of Fannie rose 67 cents to $54.88.

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