Copying and distributing are prohibited without permission of the publisher.

Watermark

Agency Market Widens On Accounting Report

24 Sep 2004

The agency bond market widened one basis point by the middle of last week, even as the broader market continued its recent rally, after Fannie Mae's regulator released a report criticizing its accounting practices.

The agency bond market widened one basis point by the middle of last week, even as the broader market continued its recent rally, after Fannie Mae's regulator released a report criticizing its accounting practices. The Office of Federal Housing Enterprise Oversight said it uncovered a series of concerns that undermine the "overall safety and soundness of the enterprise," including massaging earnings to reach bonus targets and improper hedge accounting.

Fannie's 4 5/8%s of '11, which were 49.75 basis points above 10-year Treasuries on Tuesday, widened to 51.25bps by Thursday morning. However, most of the impact was felt on the equity side, with the price of Fannie shares down 7% Wednesday. "The market is looking at this as Freddie Mac, Part II," said Carl Moerbe, senior agency strategist at Morgan Keegan, referring to the previous accounting investigation into the smaller government-sponsored enterprise.

To add fuel to the fire, the Securities and Exchange Commission is conducting an informal inquiry into the issues raised by the OFHEO report, according to a statement from Ann McLaughlin Korologos, presiding director of Fannie Mae's board of directors.

Officials from Fannie Mae and OFHEO declined comment.

24 Sep 2004

Oops, something went wrong

We're sorry but at the moment we can't load this data