Fannie Misclassified Mortgages for 21 Years

For 21 years -- ending in 2004 -- Fannie Mae misclassified mortgages it acquired and then later took losses or gains on the assets, the GSE's chief regulator told Congress Wednesday morning.Armando Falcon Jr., director of the Office of Federal Housing Enterprise Oversight, said Fannie recorded the loans as held-for-investment regardless of whether the mortgages were HFI or HFS (held-for-sale). Discussing the matter with reporters, he declined to put a dollar amount on the problem, but said the agency will know the number eventually. He said the misclassification was due to a "programming error" that was discovered last year. In testimony before the GSE subcommittee he noted, however, that "If past HFS loans cannot be identified and properly recorded, then doubts are raised about management's intent and ability to hold similar loans in HFI in the future." The regulator also elaborated somewhat on allegations of falsified journal entries in regard to amortization adjustments. He said the entries of one signer were falsified "for several years" but that OFHEO has yet to determine whether more than one employee was involved in the matter.