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Freddie Regulator Seeks $100 Million in Settlement Deal

Dec 9, 2003 | Wall Street Journal

Federal regulators looking into Freddie Mac's accounting woes are seeking $100 million or more from the company in settlement of possible civil charges stemming from its accounting misdeeds.

These people stressed that the negotiations between Freddie Mac and its regulator, the Office of Federal Housing Enterprise Oversight, are continuing, and that the final settlement could be far less. However, analysts who closely follow the mortgage-finance company believe that Freddie Mac officials are eager to reach a deal quickly. The payment likely would be in settlement of charges that the regulator could bring against the company for engaging in the accounting abuses.

The company already has taken several steps in its bid to restore credibility. Late last month, Freddie Mac completed a long-delayed restatement of past earnings, concluding that it understated results through 2002 by nearly $5 billion. And on Sunday, the company said it selected a new chief executive, former American Stock Exchange head Richard Syron.

Freddie Mac is a government-sponsored, publicly traded company created by Congress to buy mortgages from lenders, freeing lenders to make more home loans. While this process helps cut the cost of getting a mortgage, some critics say Freddie Mac and sibling Fannie Mae have taken on too much risk in a bid to accelerate their growth. Freddie Mac's internal investigation into accounting errors found that management used structured financial transactions in some cases to smooth out its earnings, in an effort to conceal the company's volatility.

Representatives for Ofheo and Freddie Mac declined to comment.

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