Accounting Flaws in Mortgage Giant

The mortgage mogul said that they had made substantial progress in completing the accounting review, but will miss the deadline for filing with the Securities and Exchange Commission, as well as being late for filing its annual financial report for the second year in a row. The company, which originates one out of every four home loans, expects that the internal report will show that the company’s financial controls remain insufficient. Fannie Mae was accused in 2004 by federal regulators of serious accounting problems and earnings manipulation to meet targets.

SEC then ordered Fannie Mae to restate earnings back to 2001; the correction could well exceed $11 billion, leading to a criminal investigation filed by the Justice Department. The reworking is not expected to be completed until the latter half of 2006, considering that up to this point the only progress made is problems submitted for review. Reviewing the reports have shown that the company’s portion of the multitrillion-dollar mortgage market has cooled by 5% compared to this time last year. The company is the second largest financial institution after Citigroup.