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Under fire, Freddie Mac retools

WASHINGTON -- Mortgage giant Freddie Mac is shutting down some operations of its debt-securities sales division and transferring others -- moves that experts said should tighten the company's internal controls after an accounting scandal.

The division, the Securities Sales and Trading Group, was responsible for some of the accounting irregularities the government-sponsored company was cited for last year. Freddie Mac restated $4.5 billion in earnings, ousted top executives, and paid a record $125 million in a settlement with federal regulators.

The market-making operations of the division will be closed, and operations involving mortgages and investments will be moved to different units of the $40 billion-a-year company, McLean, Va.-based Freddie Mac said yesterday.

That will put important market activities under more direct control of senior management, according to UBS analysts Eric Wasserstrom and Bose George. "We believe this reflects [a] push to improve internal controls," they said.

Freddie Mac and Fannie Mae, the other huge government-sponsored mortgage financer, guarantee repayment of billions of dollars of home loans each year, then bundle them into securities sold on Wall Street. Together, they back $4 trillion of home mortgages -- more than three-fourths of single-family mortgages in the country. Last week, Fannie Mae agreed to revamp its accounting and boost its reserve capital after regulators accused it of pervasive earnings manipulation.

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