Fannie business: dodgy, accounting at Fannie Mae.

• Author: Sanchez, Julian
• Position: Citings - Brief Article

FANNIE MAE, the government-chartered corporation charged with providing liquidity in secondary mortgage markets, exists in the twilight realm between private and public. A report from the agency charged with overseeing the company suggests that its accounting records had a certain hallucinatory quality as well.

An investigation by the Office of Federal Housing Enterprise Oversight found that Fannie Mae systematically misapplied generally accepted accounting practices and manipulated earnings reports to maintain an aura of stability. Executive bonuses were tied to meeting earnings targets, providing a powerful incentive to "adjust" the books. In one year examined by the office, Fannie Mae met the target" right down to the penny," guaranteeing a maximum bonus. In October, responding to the report, the Securities and Exchange Commission launched a formal probe of the company.

The report finds that Fannie Mae's dodgy practices began about six years ago. So why has it taken so...