Embattled mortgage giant Fannie Mae said Thursday that it has hired the chief financial officer of MCI to help it "rebuild and renew," as...
WASHINGTON — Embattled mortgage giant Fannie Mae said Thursday that it has hired the chief financial officer of MCI to help it “rebuild and renew,” as it disclosed new accounting errors and confirmed it will have to restate earnings by some $11 billion. Its shares fell more than 2 percent.
The government-sponsored company, which finances one of every five home-mortgage loans in the United States, also named a new chief operating officer as it again missed a regulatory deadline for filing a financial report — this time for the third quarter.
Robert T. Blakely will join the company as chief financial officer following the completion of MCI’s acquisition by Verizon Communications. Blakely was finance chief at MCI when that company emerged from bankruptcy following a multibillion-dollar accounting scandal at the former WorldCom.
The Verizon-MCI deal is expected to close later this year or early in 2006.
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In a filing with the Securities and Exchange Commission (SEC), which has ordered the company to restate earnings back to 2001, Fannie Mae affirmed previous estimates that the correction will total about $11 billion. The company said it likely will not complete the reworking of its accounting before the second half of next year.
In the filing, Fannie Mae also disclosed new accounting problems that have been uncovered in several areas, including recording losses on mortgages and the mortgage-backed securities it guarantees as well as expenses for financing some real-estate investments and accounting for low-income housing tax credits and mortgage insurance. The company did not provide an estimate of the amounts of the errors.
The errors are in addition to the accounting-rule violations that came to light last year involving derivatives, the financial instruments Fannie Mae uses to hedge against swings in interest rates, and its mortgage commitments.
Additional problems are expected to come to light in the investigations by the SEC and other federal regulators and in Fannie Mae’s own review that has been ongoing for more than a year, company Chief Executive Daniel Mudd said Thursday in a conference call with analysts.
“This is not an easy road to take,” said Mudd, who was installed by Fannie Mae’s board last December to replace ousted CEO Franklin Raines.
In addition, Fannie Mae named Michael Williams, currently executive vice president for regulatory agreements and restatement, as its new chief operating officer. Robert Levin was named to the new position of chief business officer, overseeing a number of operations including housing and community development.
Fannie Mae and Freddie Mac, its smaller rival, were created by Congress to pump money into the $8 trillion home-mortgage market. They buy and guarantee repayment of billions of dollars of home loans each year from banks and other lenders, then bundle them into securities that are resold to investors worldwide.
Fannie Mae shares fell $1.04 to $45.36 in early trading on the New York Stock Exchange.