(by Sh. Nakata)

Fannie Mae, the U.S. biggest government-ruled mortgage lender, faces formal investigation conducted by the U.S. Justice Department of possible accounting fraud.

The Justice Department launched a probe as Fannie Mae is suspected of manipulating of its books to meet earning targets within the recent years. The main Fannie’s regulator the Office of Federal Housing Enterprise Oversight (OFHEO) says the company allowed its senior executives to get a lot of money in bonuses for accounting fraud.

OFHEO last week’s report disclosed Fannie’s accounting manipulations within hedge risk.
Not all fraud within the past three years was criminally charged as the regulator unveiled only cases with extremely high profits.

Earlier this year, Fannie’s younger sibling Freddy Mac also faced an investigation and paid $125 million settlement with the promise to change its accounting strategy.

During the next week’s hearing, Fannie Mae’s executives are expected to testify on the company’s recent months’ activity. Its chairman has already criticized directors telling they were too protective towards managers.
Mike McMahon, an analyst at Sandler O’Neill & Partners LLP, underlined Fannie will have to delay its reporting of third-quarter results so far. “We don’t understand how management can provide the certification if it knows the prior-period earnings ... are incorrect,” he added.

In the second quarter, commercial and multi-family mortgage debt lifted to a record $2.17 trillion, higher $60.8 billion from the first three months of the year, analysts say. "With moderate economic growth, low delinquencies and moderate interest rate increases, the trend is likely to continue," MBA chief economist Doug Duncan said in a statement. This is the biggest quarter-to-quarter increase, he added. 

Two top executives of the Fannie Mae will testify before a House Financial Services subcommittee at an Oct. 6 hearing about the company’s alleged accounting improprieties, a company spokesman said. Chairman and CEO Franklin Raines and Chief Financial Officer Timothy Howard will both address the panel.