(by Arthur Headner)

Fannie Mae, the U.S. largest government-ruled mortgage lender, sees the continuation of the investigation on possible accounting violations and possible next week’s testimony of its former employee at a Congressional hearing.

Last year, the company’s former employee in its controller’s department noted some violations in Fannie Mae’s accounting practices and became a key-figure in the investigation of Fannie Mae’s regulator, the Office of Federal Housing Enterprise Oversight.

"The special examination found that Mr Barnes’ allegations were substantive, and that the office of auditing failed to adequately investigate the problems surrounding the amortisation process that he raised," OFHEO said in its report.

Mr. Barnes appeared to be the only witness to testify against Fannie Mae, said on Tuesday the subcommittee on capital markets, insurance and government-sponsored enterprises. The subcommittee’s chairman Richard Baker is said to be one of the strongest promoters of tighter regulations against Fannie Mae and its younger sibling Freddie Mac in the past few years.

Mr. Barnes is expected to testify on the hearing taking place on October 6.