Fannie Mae Plans To Cut Workforce

Hundreds of Full-Time Jobs To Be Eliminated This Year

Fannie Mae, the District-based mortgage funding company, plans to reduce its workforce by several hundred full-time employees by the end of this year, a company spokesman said.

The cuts are part of "an effort to streamline and improve productivity for our investors," Fannie Mae spokesman Brian Faith said.

The company employs the equivalent of about 6,500 full-time workers. About 5,300 are based in the Washington area.

The job cuts are part of an effort to save $200 million this year in operating expenses; administrative expenses alone totaled $3.1 billion last year. The company said in a recent financial report that additional cost reductions are planned for next year.

Faith would not say how much of the savings will come from layoffs, or what types of jobs will be eliminated. Details are still being worked out, he said.

Fannie Mae, headquartered in a red-brick colonial-style complex on Wisconsin Avenue NW, is one of the largest companies in the Washington area.

The Washington Examiner reported on Fannie Mae's plans for job cuts last week.

The layoffs are another in a series of upheavals since regulators accused the company of accounting transgressions in 2004. The company admitted overstating past earnings by $6.3 billion. Accused of fraud by the Securities and Exchange Commission, Fannie Mae neither admitted nor denied wrongdoing but paid a penalty of $400 million last year.

The scandal has taken a toll on the company's stock price, finances and earnings power. Correcting the flawed accounting took an army of accountants two years and more than $1.4 billion. The flaws in the company's systems proved so extensive that Fannie remains unable to issue timely financial reports and continues to spend heavily to get its house in order. Shares that traded above $77 before the problems were exposed in 2004 closed yesterday at $54.47.

Regulators have called upon Fannie Mae to hold more capital as a cushion against financial setbacks, and that can crimp the company's profitability. In addition, Fannie has accepted special restraints on the volume of its mortgage-related investments.

Other potential challenges loom as Congress works on legislation to overhaul regulation of Fannie Mae and rival Freddie Mac of McLean. A bill advanced last week by a House committee would require the two companies to contribute to a fund for affordable housing and would empower a new regulator to exert tighter control over their operations.

Chartered by the government to promote homeownership, Fannie Mae invests in mortgages and packages them into securities for sale to investors. As a result of its ties to the government, it is able to borrow money at favorable rates, a key advantage, analysts say.

The company said in December that it was cutting back on the use of contractors brought in to work on the accounting correction.

Since then, Fannie has announced that it was shutting the Fannie Mae Foundation, one of the area's largest philanthropies, and moving its activities into the corporation itself.