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Project Didn't Fit in Financial Picture

By David S. Hilzenrath
Washington Post Staff Writer
Friday, January 21, 2005; Page E01

Fannie Mae's plan to become an anchor for redevelopment in Southwest Washington was the latest casualty of an accounting scandal that has already cost investors billions of dollars and toppled two of the company's top executives.

The federally chartered mortgage-funding company balked at taking on the big new commitment as it tries to dig itself out of a financial hole. The announcement comes as some analysts foresee a period of slower growth for Fannie Mae.

Fannie Mae, with headquarters on Wisconsin Avenue NW, has said it may have to report $9 billion in previously unrecorded losses. (Jay Mallin -- Bloomberg News)

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Fannie Mae Quits SW Office Deal (The Washington Post, Jan 21, 2005)
After Scandals, Someone Must Pay (The Washington Post, Jan 20, 2005)
Fannie Mae Halves First-Quarter Dividend (The Washington Post, Jan 19, 2005)
Fannie Mae Bonuses Targeted (The Washington Post, Jan 6, 2005)
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Metro Business: Coverage of Washington area businesses and the local economy.

Still, it was not clear that Fannie Mae needed to cancel the real estate project. The company's primary regulator, the Office of Federal Housing Enterprise Oversight, has been closely monitoring and approving key steps in Fannie's effort to shore up its finances. But it appeared that the real estate venture did not factor significantly in the company's discussions with OFHEO.

"We were informed of their decision after it had been made," OFHEO spokeswoman Stefanie Mullin said. The agency is still reviewing a plan Fannie Mae submitted last month to boost its capital, Mullin said.

"The decision is one of several actions Fannie Mae has taken to reduce future costs in order to accelerate the increase in the company's capital," Fannie spokesman Charles V. Greener said in a statement.

The project was in its early stages, "and this didn't seem to be a good time" to be embarking on "what essentially would be a major transaction with obviously a certain amount of cost to it, both in money and in time," said a source close to the company, who spoke on condition of anonymity because of the sensitivity of communications about Fannie Mae's actions.

A company spokesman would not say how much money Fannie would save by scrapping the plan to move several thousand employees to the Waterside Mall. The company's main offices are on Wisconsin Avenue NW.

Fannie Mae signed a letter of intent in April with the developers of Waterside Mall to build a building of roughly 2 million square feet. It had been working on the project with District-based Kaempfer Co., Rockville-based Bresler & Reiner Inc. and Forest City Enterprises Inc. of Cleveland.

The deal Fannie had been negotiating called for the developers to buy land for $17 million and then sell it to Fannie, according to sources close to the transaction who did not want to be named because terms had never been finalized. Under the deal, the sources said, Fannie would then obtain a loan for $500 million to $700 million to finance the project and would eventually own the site.

The development was intended to meet a future need rather than a current one, Fannie spokeswoman Janice Daue said. The plan had not called for Fannie's top executives to leave the company's headquarters on Wisconsin Avenue NW, she said.

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