With the restatement complete, McLean, Virginia-based Freddie Mac can focus on hiring a new senior management team, winning back investor confidence and working with government officials to set up a new regulator. The company's shares, which have dropped 3.8 percent this year, rose $1.16 to $56.81 at 10:14 a.m. in New York Stock Exchange composite trading.

``The underlying business is intact'' with ``an even bigger capital cushion,'' said Tom Dehudy, who helps manage $14 billion at MTB Investment Advisors in Baltimore including Freddie Mac shares. ``From a confidence standpoint, there is work that needs to be done. They need a new CEO and maybe a few others in management for that to be resolved.''

Net income for 2000 was raised to $3.67 billion, or $5.01 a share, from $2.55 billion, or $3.40. For 2001, net income was cut to $3.16 billion, or $4.23 a share, from $4.15 billion, or $5.64. In 2002, profits were restated higher to $10.1 billion, or $14.18 a share, from $5.76 billion, or $7.95. The restatement boosted shareholders' equity by $6.7 billion, said Sharon McHale, a Freddie Mac spokeswoman.

Management `Weakness'

The company listed four main categories of accounting mistakes, saying improper classification of securities overstated income by $1.7 billion and errors in accounting for derivative added $4.98 billion. The mistakes, which led to the ousters of two chief executives, a president and a chief financial officer, were offset by a higher tax bill of $2.59 billion.

The government-chartered company blamed ``lack of sufficient accounting expertise and internal control and management weakness.''

The Office of Federal Housing Enterprise Oversight, Freddie Mac's regulator, said ``more remains to be done,'' including completion of 2003 quarterly financial statements.

SEC Regulations

Representative Christopher Shays, a Republican from Connecticut on the House Financial Services Committee, said the restatement shows why Freddie Mac and its larger competitor, Fannie Mae, should be forced to comply with the Securities and Exchange Commission's reporting regulations.

``This week's news clearly demonstrates the harm done to investors in exempting Freddie Mac as well as Fannie Mae from the federal securities laws,'' Shays said. ``It also illustrates why voluntary disclosure of the type preferred by these two companies is meaningless.''

Freddie Mac said it expects to release quarterly and full 2003 results by June 30, 2004. Income in 2001 was overstated by $1 billion because of non-cash losses on its derivatives, the company said in its statement.

The board's counsel, Baker Botts LLP, has uncovered more transactions that ``require further inquiry,'' and go beyond the initial report on the restatement in July, the company said.

The restatement has sparked investigations of Freddie Mac by Ofheo, the Securities and Exchange Commission and U.S. Attorney Paul J. McNulty in Alexandria, Virginia. Accounting at Freddie Mac and Fannie Mae has also fueled a movement in Congress to overhaul regulation of the companies, which own or guarantee about 42 percent of the U.S. mortgage market.

Future Earnings

Freddie Mac and Fannie Mae were chartered by Congress to make funds more widely available for home loans. They make money on the difference between the cost of debt they issue and the return on mortgages they buy. The companies have a combined $1.76 trillion in debt outstanding, more than half the obligations of the U.S. government.

Since Freddie Mac was delaying the recognition of income, earnings in future quarters will likely be less than Freddie Mac had expected, the company has said. Freddie Mac had reported total net income of $12.5 billion from 2000 though 2002. The company in June said it may use the money realized from the higher earnings to expand its business, repurchase debt or stock, or increase dividend payments.

Financial Risk

Core capital held by Freddie Mac increased by $5.2 billion as a result of the restatement, the company said. Freddie Mac doesn't expect to repurchase shares with the money ``until the company resumes timely financial reporting,'' it said.

Government officials including Gregory Mankiw, chairman of President Bush's Council of Economic Advisers, have said they are concerned that financial troubles at Freddie Mac and Fannie Mae would pose a risk to the U.S. financial system given their large size.

Their importance to U.S. housing have led investors to believe the government would bail out the companies in times of financial straights.

Freddie Mac has pushed out four top officials throughout its restatement process, led by Chairman and Chief Executive Leland Brendsel. The person who took over for Brendsel, former Chief Investment Officer Greg Parseghian, was asked to resign after less than two months on the job. At least four other risk managers and bond traders named in a report by the board's counsel resigned.

`Pilot' Needed

The company used mortgage-bond and derivative transactions to understate earnings after a new accounting rule caused it to report gains that would be hard to match in future reporting periods. Derivatives are financial contracts tied to financial instruments, currencies and interest rates. Freddie Mac uses them to protect its $616 billion portfolio from swings in interest rates.

A replacement for Parseghian, who has yet to be hired, may help in restoring confidence. Freddie Mac's share of the mortgage- backed bond market has declined to about 36 percent this year from 42 percent in 2002, as investors shun securities related to the company, analysts said.

``It would be nice to have a pilot in the cockpit since auto- pilot isn't sufficient,'' said James McGlynn, who manages $6 billion at Summit Investment Partners in Cincinnati. He hasn't owned Freddie Mac shares for about two years.

Oversight Bill

A bill to shift oversight to the U.S. Treasury from the Housing and Urban Development has been hung up in Congress, in part because some lawmakers said some provisions would hinder the companies' ability to meet their mandate of making housing more affordable. Other lawmakers and the Treasury insist a new regulator must have additional powers to prevent the companies from taking extra risks under the cover of government charters.

``Open questions surrounding external regulation, or Washington, and internal controls remain,'' said Michael Mullaney, who oversees $10 billion in stocks and bonds at Fiduciary Trust Co. in Boston, including stocks and bonds of Freddie Mac.