Fannie Inks Cap, Acc'ting Pact With OFHEO

Fannie Mae's board of directors has agreed to boost the corporation's minimum capital by 30% over the next nine months, implement accounting reforms, and recalculate the value of its derivatives going back to the first quarter of 2001 as part a supervisory agreement with the Office of Federal Housing Enterprise Oversight.Under the agreement, Fannie would have to raise $5.11 billion in surplus capital based on its March 31 minimum capital requirement of $31.35 billion. Fannie director Ann Korologos signed the agreement, which had been under negotiation since OFHEO briefed the board on its examination findings of management's intentional misapplication and disregard of accounting rules to smooth earnings over time. "The serious concerns raised in OFHEO's report require prompt actions," said OFHEO Director Armando Falcon Jr. He commended the board for moving quickly. "The board and the company have been working together to address the issues raised by OFHEO and will work closely to implement the agreement's provisions," Ms. Korologos said. Management is "in full support of today's agreement," Fannie chairman and chief executive Franklin Raines said.