Fannie Mae earnings questioned

WASHINGTON — Federal regulators have found evidence suggesting that mortgage giant Fannie Mae manipulated earnings to facilitate bigger bonuses to executives, according to a lawmaker familiar with the findings.

In an eight-month investigation, the agency that supervises Fannie Mae found a pattern of manipulation aimed at smoothing out volatility in profits from quarter to quarter similar to that which occurred at rival Freddie Mac — whose understatement of billions in profits prompted a management shake-up and a $125 million government fine. The agency, the Office of Federal Housing Enterprise Oversight, was presenting its new report criticizing Fannie Mae’s accounting practices to the board of the government-sponsored company on Monday.

Rep. Richard Baker, R-La., has been briefed on the OFHEO report, which provides “a strong indication that Fannie Mae manipulated earnings in a way that appears to be smoothing,” said Baker spokesman Michael DiResto, who was confirming a Wall Street Journal report.

He said that Baker, who heads a House panel that oversees the two mortgage companies, had a “strong concern” that increasing executive bonuses may have been a factor behind the faulty accounting — which he said the report presented as “a strong possibility.”