Freddie Mac reduces profit for first half of 2005
|November 8, 2005|
$220 million error blamed on 'legacy' computer system
Freddie Mac will reduce its profit for the first half of 2005 by about $220 million, the company said today, blaming the mistake on a "legacy" computer system.
Net income for the first half of 2005 is now reported by the mortgage giant as $1.4 billion, compared with $1.6 billion previously reported Aug. 31.
The lowered net income figure came after the company corrected miscalculated interest accruals for mortgage-related securities.
The term "legacy" is often used to describe old and obsolete computer systems.
The error comes as the company works to resume regular financial reporting after an accounting scandal in 2003 that resulted in multibillion, multiyear restatements of past earnings and an ouster of top management.
"We've made enormous strides in fixing our financial infrastructure but, as we have previously disclosed, the effort is not yet complete," said Martin Baumann, Freddie Mac's chief financial officer, in a statement.
Baumann said the company could still return to regular and timely financial reporting in early 2006.
Freddie Mac its timetable for beginning to register its securities with the Securities and Exchange Commission is not likely to be "significantly" changed. The company said it expects to release fourth quarter and full-year 2005 results and begin filing monthly capital reports to regulators no later than the end of March 2006.
The Office of Federal Housing Enterprise Oversight discovered accounting irregularities and the GSE experienced a management shakedown in 2003 when accounting irregularities surfaced.
OFHEO last year also uncovered accounting violations at fellow GSE 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, like sibling Fannie Mae, operates under congressional charter to buy mortgages from lenders and support housing markets.
Copyright 2005 Inman News