Shares in Fannie Mae plunged Wednesday after a report was issued saying regulators found new accounting violations at the mortgage giant, which is already under scrutiny for alleged bookkeeping irregularities.

A spokeswoman for the Office of Federal Housing Enterprise Oversight, which oversees Fannie Mae, would not confirm or deny Wednesday a Dow Jones report that the regulator has found extensive additional problems.

“We have an ongoing examination and I have no comment,” said Corinne Russell, a spokeswoman for the Office of Federal Housing Enterprise Oversight.

Fannie Mae shares dropped more than 10 percent following the story, which said investigators discovered evidence executives overvalued assets, underreported credit losses, and misused tax credits. The article cited unnamed sources close to, or who have been involved in, the inquiries.

The government-sponsored enterprise’s shares closed at $41.71 Wednesday, a 10.69 percent drop.

Stephen Blumenthal, acting director of OFHEO, issued a report Wednesday in which he classified Freddie Mac and Fannie Mae as adequately capitalized as of June 30, 2005.

“As of June 30, 2005, based upon information provided by Fannie Mae and adjustments for the impact on capital of estimated accounting errors, Fannie Mae has achieved an estimated $5.9 billion surplus through earnings retention and asset sales,” the report said.

Even so, OFHEO said it is “not disclosing the analysis of Fannie Mae’s capital results” due to the ongoing accounting review.

“We are pleased that our safety and soundness regulator, OFHEO, has determined that Fannie Mae was adequately capitalized at the end of the second quarter of this year,” Fannie Mae spokesman Chuck Greener said in a statement late Wednesday.

“In addition, the company believes we are on track to attain the 30 percent capital surplus by Sept. 30 in accordance with the Sept. 27, 2004, agreement with OFHEO and as part of our capital restoration plan. We are committed to continuing to work cooperatively with OFHEO throughout this process,” Greener said.

“Also, in our August Form 12b-25 filing, we provided our most recent update regarding the status of accounting issues under review, and the estimated impact of the most significant items affecting restated earnings. We will continue to provide updates through our regulatory filings as issues are identified and resolved,” the government-sponsored enterprise’s spokesman said.

Fannie Mae investigators plan to complete by year-end their inquiry into an estimated $10.8 billion in accounting errors at the mortgage giant, former U.S. Sen. Warren Rudman, who is heading the probe, told Bloomberg in mid-September.

OFHEO is reviewing Fannie Mae’s books after accusing the company of misapplying accounting rules.

The agency last year uncovered accounting violations at Fannie Mae, setting off investigations by the Securities and Exchange Commission and the U.S. Justice Department and several shareholder lawsuits. As a result, the company will have to restate earnings by as much as $12 billion.

In December 2004, Fannie Mae replaced Franklin Raines, its chairman and CEO, who announced he was taking early retirement, and Fannie Mae’s chief financial officer, Timothy Howard, resigned Dec. 21.

Fannie Mae’s financial accounting troubles have drawn shareholder lawsuits and investigations by the Justice Department and the Securities and Exchange Commission.

Freddie Mac, Fannie’s fellow major government-sponsored enterprise, also experienced a management shakedown in 2003 when accounting irregularities surfaced. The company has since restated several past years’ earnings amounting to approximately $5 billion. And The Office of Federal Housing Enterprise Oversight fined the company $125 million.

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Send tips or a Letter to the Editor to janis@inman.com or call (510) 658-9252, ext. 140.

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