Fannie Mae on Tuesday cut the dividend on its common stock by half in order to meet a requirement for more cash reserves by regulators.

The company declared first-quarter dividend of 26 cents per share. The Office of Federal Housing Enterprise Oversight, Fannie Mae’s federal supervisor, approved payment of these dividends.

“The Board of Directors believes that this is a prudent and responsible action to take as the company moves expeditiously to increase its capital,” said Stephen Ashley, non-executive chairman of the Fannie Mae Board of Directors. Fannie Mae has submitted a capital restoration plan to OFHEO for its review and approval and is working with OFHEO to address any comments or concerns.

“We look forward to continue working with OFHEO to attain the capital restoration plan,” Ashley added. Reducing the common stock dividend will contribute toward building Fannie Mae’s capital to a 30 percent surplus over its minimum capital requirement.

On Dec. 21, 2004, OFHEO classified Fannie Mae as significantly undercapitalized as of Sept. 30, 2004, which requires the director of OFHEO’s approval before the payment of any dividend on Fannie Mae’s capital stock. The board will continue to assess dividend payments for each quarter, and OFHEO has indicated that it will continue to review dividend payment requests for each quarter based upon the facts and conditions existing at the time.

Fannie Mae is a shareholder owned corporation with a government charter, and is the nation’s largest source of financing for home mortgages. The company has been under fire since accounting missteps came to light last fall, resulting in two federal investigations and the early retirement of chairman and CEO Franklin Raines.

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