Fannie Mae Embroiled In Freddie-LikeAccounting Scandal

WASHINGTON - (09/27/04) -- Shares in Fannie Mae slumped 15%last week, shedding almost $14 billion in market capitalization,after a federal regulator disclosed the secondary market giant hadengaged in many of the same accounting improprieties as its sistercompany, Freddie Mac. The charges came to light when the Office ofFederal Housing Enterprise Oversight issued a report concludingthat Fannie had engaged in balance sheet "smoothing" in order tomeet targeted profit goals by overstating the value of some assetsand deferring recognition of income. OFHEO officials even went sofar as to suggest that top management responsible for the situationshould be fired. The Fannie Mae charges cover some of the samepractices engaged in by Freddie Mac, which was found to havedeferred recognition of more than $5 billion in profits over threeyears in order to reach profit goals set by Wall Streetanalysts.