Fannie Mae Reaches Agreement with OFHEO on Accounting Irregularities

WASHINGTON – Fannie Mae wasted no time taking steps to remedy conditions a recently released report from the Office of Federal Housing Enterprise Oversight found contributed to serious accounting problems at the housing Government Sponsored Enterprises. One week after the report was released, the secondary mortgage company entered into an agreement with OFHEO to take a series of steps addressing its internal controls, organization and staffing, governance, accounting and capital. Pursuant to the agreement, Fannie Mae will achieve and maintain a capital surplus target of 30% within the next 270 days and protect its capital surplus of 18% as of Aug. 31, 2004. Fannie Mae also agreed within 15 days of the agreement, for its board to provide a comprehensive written plan to OFHEO addressing matters of supervisory concern and for its board or compliance committee to hire within 45 days an independent counsel and an independent accounting firm subject to OFHEO’s approval, to conduct reviews called for in the agreement. The OFHEO’s Sept. 20 report on Fannie Mae found earnings manipulation, lax internal controls and a corporate culture “that emphasized stable earnings at the expense of accurate financial disclosures.” The report findings prompted an inquiry by the Securities and Exchange Commission into the situation. Last year, Freddie Mac dealt with its own scandal when it disclosed it had manipulated its books which resulted in serious accounting problems and an understatement of the company’s earnings for 2000, 2001 and 2002. The disclosure triggered the firing of then-Freddie Mac President/CEO David Glenn, as well as the retirement of chairman and CEO Leland Brendsel and his resignation from the board, and Vaughn Carl as EVP-Chief Financial Officer. In addition, Freddie Mac was required to release a restatement of its earnings which it did in December. At press time, the OFHEO had not required Fannie Mae to issue a similar restatement. -