Freddie Mac to Restate at Least $4.5BSep 25, 2003 | AP
Mortgage giant Freddie Mac, beset by accounting and management troubles, disclosed Thursday that it underreported its earnings by $4.5 billion or more due to errors and manipulations of accounts, possibly exceeding the upper level of its previous estimate.
Freddie Mac said that the restatement of its earnings for the 2000-2002 period, originally expected by Sept. 30, will be delayed until November.
The latest jolting news from the U.S.-sponsored company came as a House panel considered the Bush administration's new proposal for a stronger government hand over Freddie Mac and its larger rival Fannie Mae.
At the same time, news of financial troubles surfaced at another financial institution with government ties, the Federal Home Loan Bank of New York, which provides money to home lenders in local communities. The bank, one of 12 in a nationwide system, reportedly has run into difficulty because of $183 million in losses on soured investments in bonds backed by mobile-home loans and has suspended its dividend payments.
The accounting debacle at Freddie Mac, which rattled Wall Street and the mortgage market, has brought the ouster of two chief executives since early June and investigations by the Justice Department and the Securities and Exchange Commission into the $40 billion-a-year company. The company said this summer that accounting errors and manipulations of internal accounts resulted in an underreporting of earnings by an estimated $1.5 billion to $4.5 billion in the 2000-2002 period.
Martin Baumann, Freddie Mac's executive vice president for finance and chief financial officer, said Thursday the delay in the earnings restatement was not caused by newly discovered accounting errors.
Rather, he said, the company found in its review that computer system changes were needed, as well as additional processing of data.
"We regret the need to extend our restatement deadline of Sept. 30, but our Number One priority has been and continues to be getting our financial statements right," Baumann said in a statement. "We cannot sacrifice the integrity of the process."