ACCOUNTING Fannie Mae warns of possible $9 billion loss
The company's third quarter report will not be filed on time.
WASHINGTON (AP) -- Fannie Mae's accounting crisis has taken a turn with its outside auditor KPMG refusing to sign off on its third-quarter earnings report, causing the mortgage giant to miss a regulatory deadline for filing it.
Fannie Mae, whose accounting is under investigation by the Securities and Exchange Commission, also said Monday that if the agency finds that it has improperly accounted for derivatives -- the financial instruments it uses to hedge against interest-rate swings -- it would show an estimated net loss of $9 billion for the July-September period. And it acknowledged that some of its accounting policies do not comply with generally accepted accounting principles.
Washington-based Fannie Mae, which finances one of every five home loans in the United States, disclosed the SEC investigation on Sept. 22, stunning investors.
The company, recently cited by regulators in the Office of Federal Housing Enterprise Oversight for serious accounting problems and accused of earnings manipulation, notified the SEC Monday that it would not file the third-quarter report on time.
The OFHEO regulators had ordered Fannie Mae to make massive recalculations, and the delay fueled speculation as to whether the company would restate earnings.
SEC spokesman Matt Well declined to comment on the filing as did Corinne Russell, a spokeswoman for OFHEO, an independent agency within the Department of Housing and Urban Development. Spokesmen for Big Four accounting firm KPMG could not be reached to comment Monday.
In its filing notifying the SEC, Fannie Mae said it "is not able to file a timely [quarterly report] that complies with the SEC's rules because it has been advised by its independent auditor that it is unable to complete its review of Fannie Mae's interim unaudited financial statements for the quarter ended September 30, 2004."
Accounting policies
Fannie Mae also acknowledged that some of its accounting policies do not comply with generally accepted accounting principles, apparently contradicting recent public statements by top executives who have defended the company's accounting.
Chief executive Franklin Raines and Chief Financial Officer Timothy Howard insisted in sworn testimony at a congressional hearing last month that the HUD regulators' allegations of accounting improprieties and management misdeeds going back to the late 1990s were a matter of interpreting complex rules.
In its filing Monday, the company said it "recently determined that its methodology for performing" some calculations for 2001 and 2002 balance sheets "was not consistent" with generally accepted accounting principles.