Fannie Mae Facing Another Inquiry

The Justice Department is investigating possible accounting fraud at Fannie Mae, a source close to the matter said Thursday, a move that brings greater government scrutiny to bear on the mortgage finance company -- already facing a parallel inquiry by the Securities and Exchange Commission.

Fannie Mae has been under fire since its federal financial regulator issued a report last week alleging extensive accounting irregularities and problems with internal controls.

Because of the nature of the findings of the Office of Federal Housing Enterprise Oversight, the Justice Department concluded an inquiry was warranted, the source said. The Justice Department and the regulator declined to comment.

Armando Falcon, director of the oversight agency, told Fannie Mae board members last week his office’s findings showed instances in which management had sought to misapply and ignore accounting principles to hide earnings volatility.

The SEC is conducting an informal inquiry as well.

The oversight agency said Thursday that Fannie Mae was adequately capitalized as of the end of June. But it added the company might need to restate earnings, which could affect its regulatory capital needs.

Edwin Groshans of investment banking firm Fox-Pitt, Kelton said in a research report that public demands for the resignations of Chief Executive Franklin Raines and Chief Financial Officer Timothy Howard “will be heeded.” Both are set to testify Wednesday before the House Financial Services Committee.

Fannie Mae’s shares fell $2.85 to $63.40 on the New York Stock Exchange.

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Reuters and Associated Press were used in compiling this report.