US housing giant restates profits

Freddie Mac backs one in six US homeowners

The US mortgage lender Freddie Mac plans to restate upwards its profits for the past three years by $1.5bn (£902m) to $4.5bn.

The admission comes after the group - the second largest mortgage finance company in the US - became embroiled in an accounting scandal.

Freddie Mac said it had massaged its accounting to deliver steady earnings growth over the period.

The correction is expected to reduce its income by an equivalent amount during the next few years, resulting in some turbulent results.

"These accounting policy changes will cause greater volatility in Freddie Mac's financial statements for prior periods," the company said in a statement.

"Freddie Mac believes there also will be significant volatility in its results in future periods."

The information we are disclosing today reflects poorly on Freddie Mac's past accounting, control and disclosure practices

Gregory Parseghian
Chief executive

The company is currently under investigation by federal prosecutors and the regulator, the Securities and Exchange Commission, over its accounting.

Earlier this month, Freddie Mac also ousted its chief operating officer David Glenn, and saw the departure of two other top executives.

Poor control

The company has blamed the errors on its accounting of gains from derivatives used to hedge against swings in interest rates.

"The information we are disclosing today reflects poorly on Freddie Mac's past accounting, control and disclosure practices," said Gregory Parseghian, the company's new chief executive and president.

"Management is aggressively addressing these issues."

It said in January that it would restate earnings, following weak accounting and poor internal controls.

The period covers earnings for 2000, 2001 and 2002. A review of the company's restatement will be made public in July.

Tougher laws

Separately, US lawmakers have proposed tighter regulation for both Freddie Mac and its much larger sister company Fannie Mae, which also operates in the multi-trillion dollar home loan market.

Freddie Mac and Fannie Mae buy home loans from banks and then re-package them into bonds for sale on Wall Street.

Both companies are sponsored by the government, but also have shares which are publicly traded.

Their government-chartered status means they can borrow money at a cheaper interest rates than other companies.

Shares in Freddie Mac rose 1.6% to close at $50.83, following the news of the correction.

Accounting queries

The concerns over Freddie Mac's internal corporate ethics first surfaced in January after its auditor PriceWaterhouseCoopers raised questions about its accounting.

PriceWaterhouse suggested Freddie Mac may have wrongly accounted for some items and asked the group to restate its earnings.

Mr Glenn was sacked after the company admitted he had not fully cooperated with auditors or an internal review.

Later outgoing chairman and chief executive, Leland Brendsel, and chief financial officer, Vaughn Clarke, also resigned.