Manufactured Housing Bonds Pose Problem for Fannie Mae

Last month, a few hours before a Senate panel was set to debate historic legislation to strengthen regulation of all housing GSEs, the Office of Federal Housing Enterprise Oversight laid a bombshell on Fannie Mae, saying publicly that the company "may" have to restate prior years' earnings.

OFHEO, which many not be in existence a year from now (at least not in its current form) also specified why, saying that Fannie may not have "applied the proper accounting" in regard to impairment charges on its investments in manufactured housing loans and other assets.

However, the agency did not speculate on whether such a restatement would be up or down or by how much.

On Thursday, as this newspaper went to press, Fannie Mae declined to comment further. Its stock closed up on the day, rising $1.04 to $75.39.

Fannie's manufactured housing portfolio totaled $8 billion at year-end 2003. Last year it took a $155 million "other-than-temporary" impairment charge on the portfolio, it said in a Securities and Exchange Commission filing.

Initially, a Fannie Mae spokeswoman told this newspaper that OFHEO "has not reached any conclusions" in regard to a forensic audit of its accounting policies and procedures.

OFHEO's opinion on a possible earnings restatement was contained in an agency press release on Fannie Mae and Freddie Mac's capital conditions.

In that release, OFHEO said that in the fourth quarter Fannie Mae exceeded its minimum capital requirement by $2.88 billion.

Freddie Mac exceeded its minimum by $9.05 billion. Last year, Freddie Mac restated prior year earnings upwards by $5 billion.

The restatement came after Freddie's board ousted its three top officers in June, setting off a tumultuous accounting scandal that the company is still recovering from.

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