Fannie, FAS Board And Billions Lost

While I was waiting for the media to expand on the WSJ report of an additional $2.76 billion derivative loss, I may have found it myself. Note*: the following is an educated guess on my part.

Reuters, "The Journal based its estimate of the new losses on Fannie Mae's second-quarter 2004 financial report, the most recent report it has filed with the Securities and Exchange Commission, which indicated the company had $2.76 billion in cumulative losses." I downloaded those financials and there in the balance sheet data (page 3), under Stockholders Equity, Accumulated Other Comprehensive Income was this:

Cash flow hedging results net - FAS 149........$(2.762) billion (loss)

FAS stands for financial accounting standards.FAS 149 amends FAS 133 regarding defining derivatives,among other things. FNM cited 149 for this line item and I bet the WSJ is suggesting they erred in the accounting of "derivatives called mortgage commitments, or undertakings to purchase mortgages." If a scope exception was taken, they may have booked this amount as a debit to contra-equity and a credit to liability, therefore bypassing the income statement.

"Fannie Mae reflected those losses on its balance sheet (and) didn't include them in its earnings or regulatory capital, and would therefore have to be included in any restatement," Reuters reported. Developing.