Fannie Mae faces billions more in new losses

Report: Regulator may force another restatement
Reuters
Updated: 8:33 a.m. ET March 3, 2005

NEW YORK - Fannie Mae may have to recognize as much as $2.8 billion in additional derivative losses because of new accounting concerns raised by its federal regulator, The Wall Street Journal reported in its online edition on Thursday, citing sources familiar with the matter.

The losses would be in addition to the estimated $9 billion in losses related to derivatives that the mortgage giant already has said it will recognize as it prepares to restate its financial results.

The Journal’s estimate of new losses comes after Fannie Mae’s statement last week that its regulator, the Office of Federal Housing Enterprise Oversight (OFHEO), had identified new issues with its accounting. But its statement did not include specific details or indicate the likely size of losses.

The Journal based its estimate of the new losses on Fannie Mae’s second-quarter 2004 financial report, the most recent report it has filed with the Securities and Exchange Commission, which indicated the company had $2.76 billion in cumulative losses on derivatives called mortgage commitments, or undertakings to purchase mortgages.

While Fannie Mae reflected those losses on its balance sheet, the Journal said it didn’t include them in its earnings or regulatory capital, and would therefore have to be included in any restatement.