Fannie Mae erases $6.3 billion in profit

The AP reports:

Fannie Mae wiped out $6.3 billion in profit in a long-awaited restatement Wednesday, capping the accounting scandal that stunned financial markets and brought the ouster of top executives and a big fine against the government-sponsored mortgage leader.

The correction of its earnings from 2001 through June 30, 2004, ordered by the Securities and Exchange Commission two years ago, was well below Fannie Mae's earlier estimate of $10.8 billion. The reworking of its accounting is costing the company about $1 billion this year to conduct. It is the first earnings statement filed by Fannie Mae, which finances one of every five home loans in the United States, since late 2004.

The scandal erupted in the fall of that year when federal regulators accused Washington-based Fannie Mae -- with its long-standing prestige, vaunted political clout and reputation for financial excellence -- of serious accounting problems and earnings manipulation to meet Wall Street targets.

Fannie Mae on Wednesday announced an increase in its quarterly dividend to 40 cents from 26 cents.

Its chief executive, Daniel Mudd, received a pay package of $13.1 million, including a $2.6 million bonus, for 2005, the company also disclosed in an SEC filing. Mudd, who was the top operations official at the time of the accounting misdeeds, was elevated to the top position in a management shakeup in December 2004.

In May, the federal agency that regulates Fannie Mae and Freddie Mac, its smaller sibling in the $8 trillion home-mortgage market, issued a blistering report alleging a six-year accounting fraud at Fannie Mae, the second-largest U.S. financial institution. Regulators said the scheme included manipulations to reach quarterly earnings targets so company executives could pocket hundreds of millions in bonuses from 1998 to 2004.

Fannie Mae paid a record $400 million civil fine in a settlement with the Office of Federal Housing Enterprise Oversight and the SEC.

It agreed to limit the growth of its multibillion-dollar mortgage holdings, capping them at $727 billion, and to make thorough changes in its corporate culture, accounting procedures and ways of managing risk.

The completion of the restatement "is a key step forward for the company and represents two years of hard work," OFHEO Director James Lockhart said in a statement Wednesday. "Much remains to be done. ... Fannie Mae faces enormous challenges in fixing its operational and risk management systems, in (financial controls) compliance, and in producing audited financial statements for 2005 and 2006."

In detailing its restatement, Fannie Mae cited a $7 billion net decrease from previously reported earnings for periods before 2002, a $705 million reduction for 2002, a $176 million increase for 2003 and a $1.2 billion increase for the first six months of 2004.

The lesson here is you can never give to much money away to left-wing groups.Just think if Enron would gave given even more money to Jesse Jackson:they might still be around.No word yet from Barney Frank on whether Fannie Mae should be scolded in hearings.