Fannie Mae to Pay Large Fine in Settlement

I found this article interesting at www.iwon.com and wanted to share it with you all.


WASHINGTON (AP) - Embattled mortgage giant Fannie Mae (FNM) is being fined between $300 million and $500 million for the alleged manipulation of accounting so that executives could collect millions in bonuses, according to a person familiar with the settlement .

The deal with the Office of Federal Housing Enterprise Oversight and the Securities and Exchange Commission was being announced Tuesday as the government-sponsored company struggles to emerge from an $11 billion accounting scandal.

The housing oversight agency was issuing the results of its extensive, three-year investigation of Fannie Mae, an assessment that is widely expected to be sharply critical and to touch on areas not addressed in a previous report ordered by the company's board of directors.

Those areas include the role of Fannie Mae's board and some executives still at the company in the accounting debacle, according to two individuals familiar with the report, who spoke Monday on condition of anonymity because it had not yet been made public. The regulators are expected to recommend that the company review the executives' actions with an eye to possibly firing or disciplining them, they said.


One of the individuals confirmed the anticipated civil fine against Washington-based Fannie Mae, the largest buyer and guarantor of home mortgages in the country, which was first reported Monday evening by The Wall Street Journal Online.

Officials of the company and the two federal agencies declined to comment in advance of the announcement.

According to regulators, Fannie Mae in 1998 improperly put off accounting for $200 million in expenses to future periods so executives could collect $27 million in bonuses.

"By deliberately and intentionally manipulating accounting to hit earnings targets, senior management was able to maximize their bonuses," the new report by OFHEO says, according to an individual who has seen it.

The report also is said to conclude that Fannie Mae's board failed in its oversight responsibilities and to maintain its independence from the company's former chairman and chief executive, prominent Washington figure Franklin Raines.

Documents cited in a report released earlier this year show that top-level management was focused on the $200 million deferral and meeting earnings targets that would trigger the payment of full bonuses.

OFHEO spokeswoman Stefanie Mullin and SEC spokesman John Nester declined comment Monday. Spokesmen for Fannie Mae couldn't be reached for comment.

Fannie Mae employees falsified signatures on accounting transactions that helped the company meet the 1998 earnings targets, according to congressional testimony by the former director of OFHEO. The agency first discovered in 2004 the accounting-rule violations and alleged earnings manipulation by Fannie Mae to meet Wall Street targets - disclosures that stunned the financial markets.

In December 2004, the SEC ordered Fannie Mae to restate its earnings back to 2001 - a correction expected to reach an estimated $11 billion. The Justice Department has been pursuing a criminal investigation.

Raines and former chief financial officer Timothy Howard were swept out of office by Fannie Mae's board in December 2004.

OFHEO levied a record $125 million fine in 2003 against Freddie Mac (FRE), Fannie Mae's smaller rival in the multitrillion-dollar home mortgage market, for misstating earnings - mostly underreporting them - by $5 billion for 2000-2002.

On Friday, Fannie Mae said it was replacing the chairman of its board's audit committee, a key position as the second-largest U.S. financial institution reworks its accounting and struggles to emerge from the scandal. The company said the board had named accounting professor Dennis Beresford to replace audit committee chairman Thomas Gerrity.

Source: iWon.com

Late Mortgage Payments on the Rise

According to a recent Wall Street Journal article which quotes industry giants Bear Stearns and Credit Suisse, mortgage delinquencies continue to increase, showing even greater indication that Americans are living beyond their means. Here is a link to that article: http://www.azcentral.com/business/articles/0518mort-late18-ON.html

We all should have seen it coming given the rise in home prices over the last several years which caused people to buy with Adjustable Mortgages, now paying heed to the fact that they have only a short fixed period. Now that rate are at their higher level in several years, refinancing these mortgage into loan with reasonable payments is even more of a challenge as this would tend to increase payments to already strapped borrowers.

So what is the solution?

For starters, if you find yourself in a position of having trouble making an upcoming mortgage payment, by all means, DO NOT IGNORE IT! I have never understood why people seem to think a problem will go away by not addressing it.

Here are several things to consider when in this unimaginable situation:

1. Call your loan officer. He or she should be able to provide you with some counsel.

2. Call the bank and let them know you are having financial difficulty. Trust me, it is better for you to call them than for them to call you about a late payment.

3. Take a hard look at your budget. There are very often places to cut back in your budget such as eating out, getting your nails professionally done, dry cleaning which can be replaced by ironing, etc.

If you need professional budgeting help, get it. There are certainly free resources available, but one source that I recommend is the Financial Freedom Society. In fact, I have arranged for my clients to have a FREE 10-day trial subscription to their service, which you can access by this link:
http://www.ffsi.com
4. Protect Your Credit Rating. One of the worst negative marks you can get on your credit report is a late mortgage payment. By all means guard against this.

5. Increase your income. I know this is more simple than it sounds, but if you run your family budget like a business in terms of "receivables (income) and payables (bills)", you will see that one HAS to change to be successful. You either have to decrease your expenses or increase you income on your own (by budgeting), or you will be forced to do this through bankruptcy.

6. Look into a different mortgage option. In case you haven't heard, we now have several mortgage options to assist people in this situation. As the problem has persisted, the mortgage market has responded with several new mortgage types. Here are a few of them:

- 30 year Interest Only Mortgage - This will help you by providing a fixed interest Only Period of 10 year. The "piper comes" in year 11, when the balance is re-amortized for the remaining 20 years. The question to ask yourself is where you think you will be in 10 years, and whether or not you can obtain a better rate by just getting a 10 Year Interest Only ARM.

- 40 Year Mortgage - Just like it sounds, this is a loan amortized and paid off over 480 months. This will help those who plan on living in their properties long term, but giving them a reduced payment (usually a higher rate, but over a lower term which results in lower payments).

- 50 Year Mortgage - Currently 50 Year mortgages are making their way into the market. These loans can provide additional relief as they are amortized over 600 months, however most have a demand feature where they need to be refinanced after a short fixed period of two, three, or five years. I am sure this will change as time goes on.


I hope this is helpful. If you have any questions, you can always reach me at anthony @ atozlender.com

Make it a great day!

Anthony