Justice Dept. Begins Fannie Mae Criminal Probe

The Justice Department has begun a criminal investigation into mortgage giant Fannie Mae (FNM), which has been accused of earnings manipulation and ordered to revamp its accounting, it was learned Thursday.

An accounting crisis emerged last week at the government-sponsored company, which finances and guarantees the most home mortgages in the country.

A federal agency that oversees Fannie Mae (search) and its sibling company, Freddie Mac (search), cited serious accounting problems after eight months of investigating. Also, the Securities and Exchange Commission is conducting a preliminary inqledge of that probe, first reported in Thursday's Wall Street Journal. The person spoke on condition of anonymity.

Department spokesman Bryan Sierra declined comment, as did Brian Faith, a spokesman for Washington-based Fannie Mae.

Regulators from the Office of Federal Housing Enterprise Oversight (search) have provided their findings about Fannie Mae to the Justice Department and the SEC. The agency cited in a report an instance in 1998 in which accounting for $200 million in expenses was put off to a future reporting period so executives could receive full bonuses.

Fannie Mae's board agreed this week to the agency's demands for revamped accounting and an increased capital cushion against risk.

Regulators said Thursday that the recalculations it ordered may force Fannie Mae to restate its past earnings.

Company have been called before Congress next week to explain the accounting lapse.

The role of Fannie Mae's management is under examination by the housing office regulators, who recently accused Fannie Mae executives of failing to fully cooperate with their investigation and raised the possibility of a management shake-up.