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Pastimes : Clown-Free Zone... sorry, no clowns allowed -- Ignore unavailable to you. Want to Upgrade?

To: MythMan who wrote (251562)	7/22/2003 7:08:48 PM
From: patron_anejo_por_favor	Read Replies (1) \| Respond to of 436258

I expect a hot poker up the arse every day from KLAC, until it breaks....<NG> And when that happens, I expect it to be too quick to catch unless you're already in...

To: MythMan who wrote (251562)	7/22/2003 11:44:31 PM
From: mishedlo	Read Replies (1) \| Respond to of 436258

FNM has F*d me so much it will go down without me now nytimes.com by overestimating the losses they will have from delinquent mortgages, Fannie Mae and Freddie Mac can artificially lower their earnings in one quarter, creating a reserve to draw on in future periods to bolster profits. The companies repeatedly denied using such tricks, saying their steady earnings growth was simply the result of good management and growth in the mortgage market. Freddie Mac subsequently acknowledged serious accounting problems, prompting some sophisticated institutional investors to re-examine the financial statements of both companies. What they found surprised them. Freddie Mac's accounting problems — a combination of mistakes and efforts to build a reserve for bad times — had actually lowered its pretax profits as much as $6.9 billion in 2002 and in earlier years. While Freddie Mac's profits were understated, Fannie Mae's appeared to be overstated, according to these analysts. The divergent analysis reflects the different strategies used by the two companies, said Dwight Jaffee, a professor of finance and real estate at the University of California at Berkeley. Fannie Mae and Freddie Mac profit from the spread in the interest they receive on the mortgages they own and the interest they pay on bonds they issue. But if interest rates fall and those mortgages are refinanced at lower rates, the companies can be caught paying more interest on debt than they receive on new mortgages. Fannie Mae has bet wrongly since 2000 that interest rates would remain relatively flat and mortgage prepayments would not accelerate, Mr. Jaffee said. Freddie Mac has been more conservative, hedging away more risk. Standard accounting rules do not fully measure the future effects of the refinancing that swept Fannie Mae's portfolio last year and this spring as interest rates fell, Mr. Jaffee and other critics said. They said Fannie Mae appeared to have lost billions of dollars last year and billions more in its most recent quarter, when it reported $1.86 billion in "core business earnings," a nonstandard accounting measure, and $1.04 billion in earnings under standard accounting rules. The losses, they said, have cut into its capital, making it more vulnerable to a future downturn in housing prices or sharp changes in interest rates. Franklin D. Raines, Fannie Mae's chief executive, said Fannie Mae had not decided whether to provide a quarterly fair-value balance sheet. "We have serious questions as to whether a quarterly fair-value balance sheet would provide value to investors," he said. "It is an incomplete and, therefore, potentially misleading measure of the company's value as an ongoing business."