Freddie Reportedly Overstated 2001

But the mortgage giant is still expected to say three years were understated by $4.5 billion.
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Government-sponsored mortgage company

Freddie Mac


reportedly will say it overstated its 2001 earnings by $1 billion when it details three years of accounting revisions over the next few days.

The company is still expected to say its mistaken accounting for derivatives transactions had a net effect of causing 1999, 2000 and 2001 earnings originally to be understated by about $4.5 billion, according to

The Wall Street Journal

. The revelation that earnings in one of the three years were in fact overstated comes as a surprise, however.

Accounting irregularities at Freddie have led to several rounds of management shakeups at the company and increased calls for better government oversight of it and

Fannie Mae


, its sister company in the mortgage market. Freddie has previously said the errors related to complicated derivatives contracts that it's supposed to use to hedge the value of its mortgage book but which in fact were used to smooth out earnings over several years and give the false impression of a more stable enterprise.

Freddie is being investigated by several agencies including the Office of Federal Housing Enterprise Oversight, on whose watch the earnings massaging occurred. An internal report this year said the mistakes were the result of overenthusiastic in-house accountants working in a environment of deficient oversight.

Freddie shares closed Wednesday at $54.72, roughly in the middle of its 52-week range of $46.48 to $64.78.