Lawmaker: Fannie Mae May Have Manipulated Earnings

Fannie Mae's federal regulator has suggested that the mortgage finance company may have manipulated earnings to justify bigger bonuses to executives.

According to a lawmaker briefed on the findings of the regulator's eight-month investigation, Fannie Mae apparently used questionable practices to make volatile earnings appear more steady from quarter to quarter, the Associated Press reported.

The Office of Federal Housing Enterprise Oversight (OFHEO) presented its report on Fannie Mae's accounting practices to the board of directors Monday. A spokesman for U.S. Rep. Richard Baker, R-La., said the report provides "a strong indication that Fannie Mae manipulated earnings in a way that appears to be smoothing."

Baker heads a House panel that oversees government-sponsored Fannie Mae and Freddie Mac. Baker spokesman Michael DiResto said the lawmaker had a "strong concern" that increasing executive bonuses may have been a factor behind the faulty accounting - which he said the report presented as "a strong possibility."

OFHEO's investigation stemmed from the accounting crisis at Freddie Mac, which unfolded last year when it was revealed that the company had understated profits to the tune of $4.5 billion for 2000-2002 to smooth earnings and meet Wall Street expectations. Freddie Mac paid a record $125 million fine and ousted five senior executives.

While OFHEO discovered a similar "smoothing" pattern of earnings reporting at Fannie Mae, the investigation found no evidence of accumulated profits that haven't been disclosed, as was the case at Freddie Mac, the AP reported.

Franklin Raines, Fannie Mae's chairman and chief executive, has defended the company's accounting procedures and said that it has unfairly suffered "collateral damage" from Freddie Mac's problems.

Spokeswomen for OFHEO and Fannie Mae declined comment.

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