updated 1/19/2005 8:25:39 AM ET 2005-01-19T13:25:39

Mortgage giant Fannie Mae will slash its first-quarter dividend payout by half, to 26 cents per share, as it grapples with an accounting crisis.

The announcement Tuesday by the biggest U.S. financier of home mortgages came after its chief executive and chief financial officer were forced out last month. Government-sponsored Fannie Mae faces a likely earnings restatement of some $9 billion, or about one-third of its profits, back to 2001.

Fannie Mae said government regulators had approved the dividend cut.

To make up the anticipated shortfall, Fannie Mae needs to sell part of its portfolio of mortgages, raise fresh capital by issuing stock or cut dividends — and its spectacular growth of recent years could be curtailed.

Regulators in the Office of Federal Housing Enterprise Oversight ordered the company in September to boost its capital cushion against risk by some $5 billion by the middle of this year.

Referring to the dividend cut, Fannie Mae non-executive chairman Stephen Ashley said in a statement late Tuesday, "The board of directors believes that this is a prudent and responsible action to take as the company moves expeditiously to increase its capital."

Fannie Mae has acknowledged, meanwhile, that it was warned that a North Carolina lender from which it had accepted money was engaging in an improper scheme that defrauded a federal agency.

Copyright 2005 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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