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In September 2004, the Office of Federal Housing Enterprise Oversight (“OFHEO”) announced that the Federal National Mortgage Association (“Fannie Mae”) was under investigation for engaging in deceptive accounting practices. Subsequently, in December 2004, Fannie Mae announced a $6.3 billion restatement of its earnings, the largest restatement in American history, and in May 2006, announced a $400 million settlement with securities regulators and the OFHEO for violating certain accounting standards.
In November 2007, Fannie Mae announced its results of operations for the third quarter of 2007, and reported a loss of $900 million. Fannie Mae reported $56.2 billion in subprime and Alt-A loans, and for the period ended September 30, 2007, reported a $8.7 billion decline in the value of its assets.
In a November 9, 2007 conference call with securities analysts, Fannie Mae President and Chief Operating Officer, Daniel H. Mudd, told investors that the Company had approximately $3 trillion dollars at risk in residential home mortgages, and that the Company had reserves of approximately $41 billion.
On December 4, 2007, Fannie Mae announced that the Company would reduce its dividend, and in February 2007, the Company, citing continued deterioration in the housing market and an increase in its credit loss experience, reported a $7.1 billion decline in the value of its assets and a net loss of $2.1 billion.
In July 2008, several investment analysts reported that Fannie Mae would require an additional $46 billion in capital, following a report by the Federal Reserve that suggested that the company was insolvent. On September 7, 2008, federal regulators seized control of Fannie Mae, and notwithstanding that Claimants liquidated their Fannie Mae shares in July 2008, as of even date, these securities are also substantially worthless.
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