Embattled mortgage finance giant Freddie Mac said Tuesday that it is "probable" the company will have to pay out large legal claims stemming from the shareholder lawsuits and various law enforcement actions probing its multibillion-dollar earnings restatement.

"Freddie Mac believes that a loss in connection with the proceedings arising from the restatement is probable," the company said in its much-delayed 2004 annual earnings statement.

Freddie estimated between $75 million and $100 million in potential losses.

Regulatory actions by the Securities and Exchange Commission, Office of Federal Housing Enterprise Oversight, Labor Department and inquiries by the Internal Revenue Service are still open, as is a criminal investigation by the Justice Department. Several shareholder and antitrust lawsuits are also still pending against Freddie.

Freddie spent $588 million on professional services in 2004, up from $311 million in 2003, including fees for legal, auditing, accounting and other outside consulting expertise. Freddie has already paid OFHEO a $125 million fine to settle charges that the company's accounting problems jeopardized its safety and soundness.

Freddie said it has also paid $16.8 million in legal fees so far for all current and former employees and board directors who are being sued or who have been called to provide testimony in legal actions stemming from the company's restatement.

Legislation in the Senate tightening the regulation of Freddie and fellow government-sponsored enterprise Fannie Mae would prohibit the GSEs from reimbursing executives for legal costs in certain situations.

A new auditor in 2002 uncovered widespread accounting problems at Freddie, forcing the company to restate its earnings from 2000 through 2002. The restatement found that executives underreported roughly $5.3 billion in income during that timeframe to make Freddie's earnings appear to be more smooth.

Fannie Mae has a similar problem with the opposite effect. OFHEO has uncovered numerous accounting problems at Fannie where executives have disclosed that the company overstated its income from 2001 through 2004 by more than $11 billion. Fannie has cautioned that it is still in the midst of its reaudit and other problems could surface that would change the amount of its restatement.

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