Fannie Mae Warns of Possible $9B Loss (AP)

[cthrumatrix]

Fannie Mae Warns of Possible $9B Loss


By MARCY GORDON, AP Business Writer

Shares of Fannie Mae fell sharply in pre-market trading Tuesday as the mortgage giant's outside auditor KPMG refused to sign off on its third-quarter earnings report, causing the the company to miss a regulatory deadline for filing it.


The company's stock fell $2.50, or 3.6 percent, to $67.70 in electronic trading prior to the start of the session on the New York Stock Exchange (news - web sites).


Fannie Mae, whose accounting is under investigation by the Securities and Exchange Commission (news - web sites), also said Monday that if the agency finds that it has improperly accounted for derivatives — the financial instruments it uses to hedge against interest-rate swings — it would show an estimated net loss of $9 billion for the July-September period. And it acknowledged that some of its accounting policies do not comply with generally accepted accounting principles.

snip

http://news.yahoo.com/news?tmpl=story&u=/ap/20041116/ap_on_bi_ge/fannie_mae

[demnan]

1. Money going to be tighter

in the housing market?

[hatrack]

2. Oops!

How did this little tidbit escape the eagle eyes of Larry Kudlow and the WSJ Editorial staff? Oh, never mind . . .

[phantom power]

3. I worry that our entire economy is being artificially propped up.

Nobody will report what's really going on, because if everybody found out, the whole house of cards would collapse.

[Eloriel]

4. Isn't this supposed to be

the beginning of some serious problems at least in the housing market if not the economy as a whole?

Haven't we known that there were problems at Fannie Mae for a while, but this is the first public announcement?

Just asking for an assessment from some of the money folks here -- I like to pay a little attention, but usually don't understand (or remember) all that much of what's going on.

[cliss]

5. FNMA is a strange creature.

It's considered to be a quasi-government entity. It's protected by the government, but it also sells shares. So it's not really a private corporation, and it's not really a part of the government.

However, it's grown to be a gigantic squid that's swallowed up everything in its path. Alan Greenslime has complained about FNMA becoming "too big". Coming from an indentured servant of the Bush administration, that's quite a statement.

I believe it now has holdings of $3 trillion, an ungodly sum. It's grown so large that it can move markets by itself, a scary prospect. I just read that there are 3 times as many paper mortgages as there are physical properties, so we've got a very big house of cards, as someone else put it.

The problems that have been surfacing are very strange. About 6 months ago, they were discovered to have UNDERSTATED earnings. Unlike Enron, which pumped up their statements full of hot air. These guys are low-balling (why?). By several billion $.

Now the auditor, KPMG, refuses to sign off on the financials.

What does this mean to the average homeowner and the real estate market? The market will probably go down. Maybe not by a huge amount. It depends on what happens with the stock. It's already going down, but market forces will probably stabilize it.

It might start to follow a steady downward trend. That's my best estimate. Watch them for the next 6 months.