Fannie Restatement Nowhere Near Done

The four-year recalculation could take until late 2006.
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Fannie Mae's

(FNM)

restatement of its earnings for the past four years is going to take a long, long time.

The government-sponsored mortgage finance firm says it might not complete the restatement before the second half of 2006. The lengthy delay is just one more indication of the size of the accounting irregularities at the nation's biggest buyer of mortgages.

"As our normal business operations continue, we also are committing every available resource to the restatement,'' said Fannie President and CEO Daniel Mudd. "This year we expect that over 30% of our employees will spend over half their time on it, and many more are involved."

In fact, the restatement is such a big task, Fannie expects to hire some 1,500 consultants by year's end.

Last December, the

Securities and Exchange Commission

ordered Fannie to restate its earnings for the past four years. The SEC effectively ratified an earlier finding by the Office of Federal Housing Enterprise Oversight (OFHEO) that the government-sponsored entity used improper accounting methods for valuing its derivatives. The erroneous accounting could force Fannie to report after-tax losses on its derivatives transactions of as much as $11 billion.

For the past nine months, Fannie has been trying to raise capital to fix the hole in its balance sheet, as well as meet the minimum capital requirements established by OFHEO, the firm's regulator.

The accounting scandal at Fannie caused Franklin Raines to step down as CEO under fire late last year.