Fannie Mae Sees More Red - TheStreet

A cyclone of scandal continues to engulf

Fannie Mae



The federally chartered mortgage merchant said in an

Securities and Exchange Commission

filing that it won't be able to file its annual report or form 10-K before a March 31 deadline. Although Fannie is in crowded company on that front this quarter because of the strictures of Sarbanes-Oxley, other disclosures were more ominous.

Fannie Mae told the agency that it could be forced to wipe another $2.4 billion in profit off its books as it works to fix accounting problems that were identified by its regulator, the Federal Office of Housing Enterprise Oversight, in February. The agency questioned whether certain commitments it 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.

"If Fannie Mae does not qualify for hedge accounting for mortgage commitments accounted for as derivatives since its July 1, 2003, adoption of FAS 149, the company estimates that it would be required to record in earnings a net cumulative after-tax loss related to these commitments of approximately $2.4 billion as of Dec. 31, 2004," Fannie Mae said in the filing.

On Instinet, the stock recently traded at $53.75, down 75 cents, or 1.4%, from Thursday's close. The price would represent a 52-week low for the stock.

The company, which ousted CEO Franklin Raines in December, is already in the process of restating $8.4 billion off its books because of other accounting problems. 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.

"Because Fannie Mae is still in the early stages of this process, which began in December 2004, Fannie Mae is unable to reasonably estimate the effect of these issues on its reported results of operations for purposes of this Form 12b-25," it wrote.

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."

Questions about whether Fannie employees forged signatures on financial records were the subject of a

Wall Street Journal

story Thursday that quoted an unnamed OFHEO official who wouldn't rule out the possibility of criminal charges at the company.