Freddie Mac Delays Releasing Revised Numbers- Could Exceed $4.5B Error

[cthrumatrix]

Freddie Mac Delays Releasing Revised Numbers

By David S. Hilzenrath and Kathleen Day
Washington Post Staff Writers
Friday, September 26, 2003; Page E01


Freddie Mac, the giant mortgage funding company, yesterday postponed until November the release of corrected financial statements and announced that the errors for the past three years could exceed its previous estimate of up to $4.5 billion.

Chief Financial Officer Martin F. Baumann said in an interview that the company postponed the correction because it discovered a glitch this week in a new system installed as part of an overhaul of company accounting announced in January. The system was generating numbers related to Freddie Mac fees that appeared out of synch, Baumann said.

"Unfortunately, trying to rush a new accounting system into production, somebody missed a flaw in the logic of the system as to how we were going to account for certain fees," he said.

Baumann said the accounting errors could eventually total $4.5 billion to $4.7 billion, though he added that he couldn't even state that range with precision. "We don't think it's going to be materially above" $4.5 billion, he said.

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http://www.washingtonpost.com/wp-dyn/articles/A2081-2003Sep25.html

[rapier]

1. notes

Note that they 'understated' their earnings. Now why would they do that? Every other company in the US overstates.

Because lurking behind the doors of a seemingly boring mortgage agency, a quasi governmental agency, lies a gunslinging hyper leveraged trading
room. For such traders in the mortgage arena big profits have been relatively easy with the one direction, down, interest rate trend.

Having the aura of being a government backed enterpise, which they aren't as their debt is not backed they Uncle Sam, has allowed them to borrow at the best rates possible which is a competitive advantage. But they want to downplay their profitibiliy because that makes some question their phony government backed act. So best to look more staid and reliable.

There is one other thing. Just as outsized profits can accrue when using leverlage, (ie. speculating on borrowed money) so too can losses. Their accounting system was meant to hide losses as well as gains. Using the hidden gains to cover losses if it came to that. I suspect it has come to that. The gigantic spike in long term interest rates this summer likey caused them all sorts of headaches. If rates can go back down or remain here they mightg dodge a bullet, but who k nows.

[cthrumatrix]

2. This is why the "treasury" wants oversight....the crooks watch the crooks

[ozone_man]

3. My take also.