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Fannie Mae's alleged new
accounting problems won't shake its core business, a top Federal Reserve
official said Tuesday, according to media accounts.
"I don't see anything in these reports that suggests a
solvency issue," St. Louis Federal Reserve Bank President William Poole
told Reuters after making a speech. Fannie's shares plunged last week after
Dow Jones published a report saying regulators found new accounting
violations at the mortgage giant.
Fannie Mae is already under scrutiny for alleged bookkeeping
irregularities that could force the company to restate earnings by as much as
$12 billion.
A spokeswoman for the Office of Federal Housing Enterprise
Oversight, which oversees Fannie Mae, would not confirm or deny last Wednesday
the report that the regulator has found extensive additional problems.
Poole told reporters the issue really served to underscore
his longstanding argument that government sponsored enterprises Fannie Mae and
Freddie Mac need more regulation, Reuters reported.
"It probably doesn't shake the core business. Fannie
Mae is still well enough capitalized," Poole said, according to reports.
"What it does do is to add to the case for fundamental reform.
"These firms create a continuing systemic risk to the
economy...The scale is so immense," said Poole.
Fannie Mae investigators are pursuing an inquiry into an
estimated $10.8 billion in accounting errors at the mortgage giant, led by
former U.S. Sen. Warren Rudman.
OFHEO is reviewing Fannie Mae's books after accusing the
company of misapplying accounting rules.
The agency last year uncovered accounting violations at
Fannie Mae, setting off investigations by the Securities and Exchange
Commission and the U.S. Justice Department and several shareholder lawsuits. As
a result, the company will have to restate earnings by as much as $12 billion.
In December 2004, Fannie Mae replaced Franklin Raines, its
chairman and CEO, who announced he was taking early retirement, and Fannie
Mae's chief financial officer, Timothy Howard, resigned Dec. 21.
Fannie Mae's financial accounting troubles have drawn
shareholder lawsuits and
investigations by the Justice Department and the Securities and Exchange
Commission.
Freddie Mac, Fannie's fellow major government-sponsored
enterprise, also experienced a management shakedown in 2003 when accounting
irregularities surfaced. The company has since restated several past years'
earnings amounting to approximately $5 billion. And The Office of Federal
Housing Enterprise Oversight fined the company $125 million.
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