Fannie Mae, U.S. mortgage government agency received approval for a December preferred stock dividend from its regulator, the Office of Federal Housing Enterprise Oversight (Ofheo), although the Ofheo said it could not grant approval for dividends in the subsequent periods and will therefore issue approval separately for each quarter, according to Fannie Mae spokesman Chuck Greener.
"OFHEO said that, in each case, OFHEO would continue to assess the impact on safety and soundness, the impact on achievement and maintenance of appropriate capital levels, and the public interest," Greener said.
A dividend cut could have become one of the ways in which the company could have raised funds for covering the breach in capital, as the recent restatements of its earnings left it undercapitalized. At the given level of operations, it would take Fannie two years to achieve the required capital level, which may force Fannie to sell some of the mortgage assets it holds.
The Office of Federal Housing Enterprise Oversight, has launched a probe into the bonuses and compensations received by Fannie’s two top executives fired earlier this week.
Fannie Mae has announced firing of Chief Executive Officer Franklin Raines and Chief Financial Officer J. Timothy Howard yesterday in the wake of the accounting scandal that led to restatements of $9 billion in profit. Raines’ removal was provoked by loss of confidence in the management that kept reiterating that Fannie Mae’s records were clean in the height of the scandal. Raines insisted during his testimony in Congress that the accusations had no ground.
Company sources report that Raines’s compensation included $10.6 million in annual bonuses and $25.7 million in long-term incentive plan payouts in the period from 2001 through 2003. The payouts were dependent on the achievement of financial targets.
The management ouster at Fannie has created prerequisites for the creation of a stronger regulatory agency supervising both government agencies reselling pools of mortgages to investors, Fannie Mae and Freddie Mac. Bush administration is currently pushing in Congress for legislature that will create a new agency to oversee both as critics claim the Office of Federal Housing Enterprise Oversight, or Ofheo, was not efficient.
The SEC ruled Friday that Fannie Mae is guilty of violating the accounting standards and needs to restate its earnings for the past four years. Fannie Mae has agreed to comply with the decision and will recognize $9 billion of losses on interest-rate risk hedging derivatives in its next quarterly earnings statement.
The case is also ruinous for the company’s reputation as a moral institution helping poor families to get access to housing.
Read also: