OFHEO Makes It Official: Fannie Undercapitalized

The Office of Federal Housing Enterprise Oversight declared Dec. 21 that Fannie Mae is "significantly undercapitalized," by $3 billion, and that the company has to raise another $10.6 billion in capital under a previous supervisory agreement.OFHEO said that, as of Sept. 30, Fannie had $38 billion in core capital. However, the company has to restate its earnings in response to a Securities and Exchange Commission ruling, which is expected to wipe out $9.2 billion in core capital. The regulator said it has directed Fannie Mae "to provide OFHEO with a capital restoration plan to bring core capital into compliance with the minimum capital requirement plus a targeted surplus of 30% over the minimum capital requirement level," as required by the supervisory agreement Fannie's board signed Sept. 27. The new capital classification is raising the prospect that Fannie could be required to suspend dividend payments on its common and preferred stock, financial analyst Bert Ely said.